SEIS and EIS tax relief: what UK startup investors actually get
By calculatemysalary.co.uk Editorial Team
SEIS and EIS offer serious tax breaks for investing in UK startups. What the schemes give you, what they cost, and what can go wrong.
Investing in startups is risky. The UK government wants people to do it anyway, so it offers two schemes with genuinely generous tax breaks: the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).
SEIS: for very early-stage companies
SEIS targets the riskiest investments — pre-revenue startups with fewer than 25 employees and less than £200,000 in gross assets. The tax relief reflects that risk:
- 50% income tax relief on investments up to £200,000 per tax year. Invest £20,000 and your income tax bill drops by £10,000.
- CGT exemption: No capital gains tax on profits from SEIS shares held for at least three years.
- CGT reinvestment relief: Reinvest a capital gain into SEIS shares and get 50% CGT relief on the reinvested amount.
- Loss relief: If the company fails, you can offset the loss against your income tax or capital gains.
Worked example
You invest £40,000 in a SEIS-qualifying startup.
Income tax relief: 50% × £40,000 = £20,000 off your tax bill.
If the company goes bust, your net loss after tax relief is £20,000 — and you can claim further loss relief on that remainder. If the company succeeds and you sell after three years, any gain is CGT-free.
Your downside is capped. Your upside is tax-free. That's the deal for backing a company that might not exist in two years.
EIS: for slightly more established companies
EIS covers companies with up to 250 employees and £15 million in gross assets. Still small businesses, but less precarious than SEIS territory.
- 30% income tax relief on investments up to £1,000,000 per tax year (£2,000,000 if the company is "knowledge-intensive").
- CGT deferral: Defer capital gains tax on other assets by reinvesting the gain into EIS shares.
- CGT exemption: No CGT on EIS shares held for at least three years.
- Loss relief: Same as SEIS — offset losses against income or capital gains.
- Inheritance tax relief: After two years, EIS shares can qualify for 100% business relief from IHT.
Worked example
You have a £50,000 capital gain from selling a rental property. You invest £50,000 into an EIS-qualifying company.
Income tax relief: 30% × £50,000 = £15,000 off your tax bill.
The £50,000 gain is deferred — you won't pay CGT on it until you sell the EIS shares (or lose the relief). If you hold the EIS shares for three years and sell at a profit, the new gain is CGT-free.
SEIS vs EIS at a glance
| SEIS | EIS | |
|---|---|---|
| Income tax relief | 50% | 30% |
| Max annual investment | £200,000 | £1,000,000 (£2M for KICs) |
| CGT exemption | Yes (3-year hold) | Yes (3-year hold) |
| CGT reinvestment/deferral | 50% relief on gains reinvested | Full deferral of gains |
| Loss relief | Yes | Yes |
| IHT relief | No | Yes (after 2 years) |
| Max company employees | 25 | 250 |
| Max gross assets | £200,000 | £15,000,000 |
Who qualifies
The investor must:
- Be a UK taxpayer
- Hold less than 30% of the company's shares
- Not be an employee of the company (directors can qualify in some cases)
The company must:
- Be unlisted and UK-based
- Carry out a qualifying trade (most do, but holding companies and property developers generally don't)
- Meet the size and age limits for the relevant scheme
For SEIS, the company must have been trading for less than three years.
How to claim
After the investment, the company applies to HMRC and then issues you a compliance certificate — an SEIS3 or EIS3 form. You claim the relief through your Self Assessment tax return.
You can carry back the relief to the previous tax year, which is useful if your income was higher last year.
Full details are on GOV.UK's venture capital schemes page.
The risks are real
Tax relief softens the blow of a failed investment, but it doesn't eliminate it. Most startups fail. Your shares will be illiquid — there's no stock exchange to sell them on. And the compliance rules are strict: if the company stops qualifying (say it gets acquired by a large firm within three years), you can lose the relief retrospectively.
Treat SEIS and EIS investments as part of a diversified portfolio, not a tax avoidance strategy. The relief exists because the risk justifies it.
Use our salary calculator to work out your current tax position and see how much relief these schemes would save you.