Understanding SEIS and EIS: A Beginner's Guide to Tax Relief Options
- Jan 3
- 4 min read
Investing in startups and small businesses can be risky, but the UK government offers two powerful schemes to encourage investment by reducing the tax burden: the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). These schemes provide tax reliefs that make investing in early-stage companies more attractive. This guide breaks down SEIS and EIS in simple terms, helping beginners understand how they work, who can benefit, and what to watch out for.
What Are SEIS and EIS?
Both SEIS and EIS are government-backed schemes designed to help small, early-stage companies raise money by offering tax incentives to investors. The goal is to encourage investment in startups that might otherwise struggle to attract funding.
SEIS targets very early-stage companies, often just starting out.
EIS supports slightly more established companies that are still small but have moved beyond the seed stage.
These schemes reduce the financial risk for investors by offering tax relief on the money they invest. This means investors can get back a portion of their investment through tax reductions, making it easier to support new businesses.
How SEIS Works
SEIS is aimed at companies that are less than two years old and have fewer than 25 employees. It offers some of the most generous tax reliefs available to investors.
Key Benefits for Investors
Income tax relief of 50% on investments up to £100,000 per tax year.
Capital gains tax exemption on profits made from SEIS shares held for at least three years.
Loss relief if the investment fails, allowing investors to offset losses against their income tax.
Example
If you invest £10,000 in a qualifying SEIS company, you can reduce your income tax bill by £5,000. If the company grows and you sell your shares after three years for a profit, you won’t pay capital gains tax on that profit. If the company fails, you can claim loss relief to reduce your tax bill further.
Company Requirements
Must be less than two years old.
Have fewer than 25 full-time employees.
Have gross assets of no more than £200,000.
Use the money raised for a qualifying trade.
How EIS Works
EIS supports companies that are a bit more established than SEIS companies. It is designed to help small businesses raise up to £5 million per year and £12 million in total.
Key Benefits for Investors
Income tax relief of 30% on investments up to £1 million per tax year (or £2 million if at least £1 million is invested in knowledge-intensive companies).
Capital gains tax deferral on gains from other assets if reinvested in EIS shares.
Capital gains tax exemption on profits from EIS shares held for at least three years.
Loss relief similar to SEIS.
Example
If you invest £20,000 in an EIS company, you can reduce your income tax bill by £6,000. If you have a capital gain from selling another asset, you can defer paying tax on that gain by reinvesting it in EIS shares. After holding the shares for three years, any profits you make are free from capital gains tax.
Company Requirements
Must be less than seven years old (or ten years for knowledge-intensive companies).
Have fewer than 250 full-time employees.
Have gross assets of no more than £15 million before investment.
Use the money raised for a qualifying trade.
Differences Between SEIS and EIS
Understanding the differences helps investors decide which scheme fits their goals and risk appetite.
| Feature | SEIS | EIS |
|-------------------------|----------------------------------|----------------------------------|
| Target Company Age | Less than 2 years | Less than 7 years (10 for some) |
| Maximum Investment | £100,000 per tax year | £1 million per tax year |
| Income Tax Relief | 50% | 30% |
| Capital Gains Tax Relief| Exempt after 3 years | Exempt after 3 years |
| Loss Relief | Yes | Yes |
| Company Size Limit | Fewer than 25 employees | Fewer than 250 employees |
Who Should Consider SEIS and EIS?
These schemes suit investors who:
Want to support startups and small businesses.
Are comfortable with higher investment risk.
Want to reduce their tax bills through legitimate reliefs.
Plan to hold investments for at least three years to benefit fully.
Entrepreneurs can also benefit by raising funds under these schemes, but they must ensure their company meets all the qualifying criteria.
Important Considerations
Holding period: To keep tax reliefs, investors must hold shares for at least three years.
Qualifying trades: Not all business activities qualify. For example, property development or financial services usually do not qualify.
Risk: Investing in startups is risky. Even with tax reliefs, investors can lose their entire investment.
Professional advice: Tax rules can be complex. Consulting a financial advisor or tax specialist is recommended before investing.
Next Steps for New Investors
If you are interested in SEIS or EIS:
Research companies carefully to ensure they qualify.
Understand the risks involved in investing in early-stage businesses.
Speak with a tax advisor to confirm how the schemes apply to your situation.
Consider diversifying your investments to spread risk.
These schemes offer a valuable way to support innovation while reducing your tax bill, but they require careful planning and understanding.
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