The Enterprise Investment Scheme, better known as EIS, is one of the most attractive tax-efficient investment schemes available to UK taxpayers. Introduced by the government in 1994, it was designed to help smaller, growing companies raise the capital they need, while rewarding the investors who back them with a generous package of tax reliefs.
For experienced investors who want to support British innovation and build a more diversified portfolio, EIS can be a powerful tool. Here is how it works.
What Is EIS?
EIS is a government-backed scheme that offers tax reliefs to individuals who buy new shares in qualifying early-stage companies. These are typically unquoted UK trading businesses with ambitious growth plans, from technology and life sciences to clean energy and consumer brands. By investing, you provide these companies with growth capital, and in return the scheme helps you keep more of the rewards.
The Key Tax Benefits of EIS
- Income tax relief: claim 30% of the amount you invest back against your income tax bill, on investments of up to £1 million per tax year, or up to £2 million where the excess is invested in knowledge-intensive companies
- Carry back: treat some or all of an investment as if it were made in the previous tax year, giving extra flexibility
- Capital gains tax exemption: gains on qualifying EIS shares can be free from capital gains tax when you sell, provided income tax relief was claimed and the shares have been held for at least three years
- Capital gains deferral: defer a capital gain made elsewhere by reinvesting it in EIS shares
- Loss relief: if a company does not succeed, you can offset the loss, net of the income tax relief received, against your income or capital gains
How Does EIS Work in Practice?
You subscribe for new shares in a qualifying company, either directly or through an EIS fund that spreads your investment across several companies. Once the company has been trading for the required period, it issues an EIS3 certificate, which you use to claim your relief through your self assessment tax return or by contacting HMRC.
To keep the reliefs, the shares must normally be held for at least three years. You must also not be “connected” to the company, which broadly means you cannot be an employee or hold more than 30% of it.
Who Is EIS Suitable For?
EIS is best suited to experienced investors who pay UK income tax, have a long-term outlook and are comfortable with the higher risk that comes with investing in younger companies. Many investors use EIS alongside pensions and ISAs as part of a wider tax planning strategy, particularly once they have used their other allowances.
EIS Opportunities with New Capital Link
EIS opportunities are one of the areas New Capital Link covers for its network of sophisticated and high-net-worth investors. As an introducer, we help investors discover carefully selected opportunities and access full information on each one, so they and their advisers can make their own informed decisions. You can learn more on our EIS opportunities page.
The Bottom Line
EIS offers a rare combination: the chance to back exciting British businesses at an early stage, with meaningful tax incentives to support you. For the right investor, with the right time horizon, it can be a valuable part of a well-balanced portfolio.
Important Information
This article is for general information only and is not financial, tax or legal advice. Alternative and early-stage investments are high risk: you could lose all the money you invest, returns are not guaranteed, and you may not be able to sell your investment quickly. Tax treatment depends on your individual circumstances and may change. Please read our risk warning and consider taking independent financial advice before investing.
