TRW & Co · Venture capital and tax
SEIS and EIS: Raising Investment with Tax Relief
SEIS EIS tax reliefs let UK investors claim 50% or 30% income tax relief, capital gains exemption and loss relief on new shares in qualifying unquoted companies. This guide explains the company and trade tests, the higher EIS limits from April 2026, advance assurance, the share-structure traps that cost investors relief, and what founders should do before issuing shares.
Key pointOnce a company issues EIS shares it can no longer issue SEIS shares, and a liquidation preference on the relief-seeking investors’ shares disqualifies them, so the order of issue and the share classes need deciding before any money arrives.
At a glance
SEIS: 50% relief
SEIS investors get 50% income tax relief on up to £200,000 a year; companies can raise up to £250,000 in total under the scheme.
EIS: 30% relief
EIS investors get 30% income tax relief on up to £1 million a year, or £2 million where over £1 million goes into knowledge-intensive companies.
Higher EIS limits 2026
From 6 April 2026, EIS companies can raise £10 million a year and £24 million in total, with gross assets up to £30 million before issue.
Three-year conditions
Companies must meet the scheme rules for at least three years after issue, and tell HMRC within 60 days if they stop qualifying.
Ordinary shares only
Qualifying shares must be fully paid in cash, not redeemable and carry no preferential rights to assets, which rules out liquidation preferences.
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The short answer: how SEIS EIS relief helps you raise money
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) give UK taxpayers who buy new shares in qualifying unquoted companies generous tax reliefs, which makes those shares easier to sell to angel investors. For founders, SEIS EIS eligibility is often the difference between an angel round closing and stalling.
SEIS gives investors 50% income tax relief on up to £200,000 a year, and is designed for very early companies. EIS gives 30% income tax relief on up to £1 million a year, or £2 million where the excess is in knowledge-intensive companies, and suits companies that are already growing. Both offer capital gains tax exemption on qualifying shares held for at least three years and loss relief if the investment fails.
The company has to meet detailed conditions when the shares are issued and for at least three years afterwards. This guide sets out those conditions as they stand in October 2026, including the higher EIS company limits that took effect on 6 April 2026.
The legal framework
EIS is set out in Part 5 of the Income Tax Act 2007 and SEIS in Part 5A, with capital gains tax reliefs in the Taxation of Chargeable Gains Act 1992. HMRC administers both schemes through its Small Company Enterprise Centre and publishes detailed guidance in the Venture Capital Schemes Manual.
The company-facing guidance on using SEIS and using EIS explains the company conditions, while the investor guidance explains the reliefs. The EIS and VCT rules have been extended to 2035. The government raised the EIS limits from April 2026, but did not change the core SEIS limits.
SEIS and EIS compared
| Condition | SEIS | EIS |
|---|---|---|
| Investor income tax relief | 50% | 30% |
| Investor annual limit | £200,000 | £1 million (£2 million if over £1 million is in knowledge-intensive companies) |
| Company limit | £250,000 in total (including certain de minimis state aid) | £10 million a year; £24 million lifetime (higher for knowledge-intensive companies) |
| Gross assets | Not over £350,000 at issue | Not over £30 million before issue and £35 million after |
| Employees | Fewer than 25 full-time equivalents | Fewer than 250 full-time equivalents |
| Age of trade or company | New qualifying trade, carried on for no more than three years | Generally within seven years of first commercial sale |
| Spending deadline | Within three years of issue | Within two years of issue or, if later, the start of trading |
| CGT relief on other gains | Reinvestment relief: 50% of the amount invested, up to a maximum of £100,000 of gains | Deferral relief: gains deferred, no cap |
Separate, more restrictive limits apply to "specified companies" in Northern Ireland trading in goods or the wholesale electricity market. Knowledge-intensive companies, which carry out significant research and innovation, have higher limits and more time to raise.
The qualifying company and trade tests
Company tests
For SEIS EIS purposes, the company must be unquoted at the time of the issue with no arrangements to list, have a UK permanent establishment (for EIS) or be established in the UK (for SEIS), and be independent: it must not be controlled by another company. Any subsidiaries must be qualifying subsidiaries, with a 90% subsidiary required where it carries on the funded activity.
The company must not be in financial difficulty, and it must meet the gross assets and employee tests in the table above when the shares are issued. Group figures count, so a holding company must add up all subsidiaries.
Trade tests
The company must carry on a qualifying trade on a commercial basis with a view to profit. Some activities are excluded if they form a substantial part of the trade, including dealing in land, financial activities, leasing, legal and accountancy services, property development, and operating hotels or nursing homes. Many businesses with mixed models need careful analysis, especially where revenue comes from licensing or holding intellectual property.
For SEIS, the trade must be new, meaning not carried on by the company or anyone else for more than three years, and the company must not have carried on a different trade before. For EIS, the main rule ties eligibility to the first seven years after the first commercial sale, with exceptions for follow-on funding planned in the original business plan or for entry into a new product or geographic market.
The risk to capital condition
Both schemes require the company to intend to grow and develop its trade in the long term, and the investment must carry a real risk of loss greater than the expected net return, including tax relief. HMRC looks at the business model, assets, subcontracting and how the round is marketed. Capital preservation structures, asset-backed models and arrangements that give certain investors priority are likely to fail.
Share-structure traps
Most SEIS EIS problems arise from share rights. Qualifying shares must be full-risk ordinary shares paid up in cash at issue. They must not be redeemable and must not carry preferential rights to assets on a winding up. Limited preferential dividend rights are allowed, but only if the dividend cannot accumulate or be varied at anyone's discretion.
That rules out shares with a liquidation preference, which is standard for institutional venture investors. Rounds that combine angels claiming relief with venture funds therefore usually issue different classes. Our guide to the venture capital term sheet explains how to structure this.
Other common traps include:
- Issuing SEIS and EIS shares in the wrong order. Once a company has issued EIS shares, it can no longer issue SEIS shares, so SEIS shares must come first.
- Payment after issue. Shares must be fully paid in cash when issued. Allotting first and collecting money later can disqualify them.
- Pre-arranged exits. Put and call options, guaranteed buybacks or arrangements for the investor to sell at the end of the period break the rules. See our guide to put and call options.
- Investors already holding shares. For EIS, an investor who already holds non-qualifying shares acquired after formation cannot usually claim relief on new shares.
Advance assurance is not a guarantee. HMRC reviews only the information provided and only certain conditions. If the business plan, share rights or investor list change before the shares are issued, tell HMRC in the compliance statement, or the assurance may not apply.
The SEIS EIS process step by step
- Check eligibility. Test the company, trade, gross assets, employees, age and risk to capital conditions, and the funding history.
- Apply for advance assurance. Use HMRC's online advance assurance service, with the business plan, forecasts, articles, register of members, investor documents and details of prospective investors.
- Prepare the documents. Draft the articles, subscription documents and any shareholders' agreement so the share rights meet the conditions.
- Collect funds, then issue shares. Receive cleared money before allotment, issue SEIS shares before any EIS shares, and file the allotment return at Companies House.
- Use the money correctly. Spend it on the qualifying business activity within the deadlines, and keep records.
- Submit the compliance statement. File SEIS1 once the trade has been carried on for four months or 70% of the money has been spent, or EIS1 after four months of the qualifying activity.
- Issue certificates. On approval, HMRC provides a unique reference and the SEIS3 or EIS3 certificates, which the company completes and sends to investors so they can claim relief.
- Stay compliant for three years. Monitor the conditions and tell HMRC within 60 days of any event that causes relief to be withdrawn.
Investor reliefs and conditions
Investors claim income tax relief against their UK tax liability for the year of investment, or by carry-back to the previous year. If the shares are held for at least three years and income tax relief has not been withdrawn, gains on sale are free of capital gains tax. If the shares are sold at a loss, the loss, net of relief already given, can be set against income.
Capital gains tax reliefs on other gains
EIS deferral relief lets an investor defer a gain on any asset by investing in EIS shares between one year before and three years after the disposal. The deferred gain comes back into charge when the EIS shares are sold, or if the company stops qualifying or the investor becomes non-resident. Deferral relief is available even where income tax relief is not, for example because the investor is connected with the company.
SEIS reinvestment relief works differently. It exempts part of a gain rather than deferring it: up to half of the amount invested under SEIS, subject to the annual limit, so the maximum gain exempted is £100,000. The investor must also claim SEIS income tax relief on the same shares, and any disposal used must fall in the same tax year as the claim.
Investors must not be "connected" with the company. Broadly, they and their associates must not hold more than 30% of the shares, voting rights or rights to assets, and for EIS they must not be paid employees or paid directors except in limited cases. Directors can claim SEIS relief. The rules on business angels who become paid directors are detailed and should be checked before appointment.
Illustrative scenario: seed and follow-on round
This scenario is illustrative only; the parties are generic. A newly incorporated UK climate technology company has two founders and no prior funding. It obtains advance assurance and raises £250,000 under SEIS from ten angels, issuing ordinary shares after receiving their money. Eighteen months later it raises a further £1.5 million: some angels invest under EIS in ordinary shares, while a fund invests in a new class of preferred shares that does not qualify.
The company keeps the ordinary shares free of preferences, issues no shares to the angels on any later round that would cause a connection problem, and files the compliance statements on time. When a buyer acquires the company four years later, the angels' qualifying shares are sold free of capital gains tax. The planning that made this possible was mostly done before the first share was issued.
Risks and common mistakes
Breaching the conditions during the three-year period
Relief depends on the company continuing to meet the conditions for at least three years after the shares are issued. Selling the business, becoming a subsidiary of another company, changing to an excluded activity, returning value to shareholders or failing to spend the money in time can all cause relief to be withdrawn. Investors may then face repayment of tax. The company must tell HMRC within 60 days of such an event. Keep a compliance calendar and check any corporate transaction against the rules before agreeing it.
Using SEIS EIS money for the wrong purpose
Money raised must be used for the qualifying business activity, which means the trade, preparing to trade, or qualifying research and development. It must not be used to buy shares in another company, except in a qualifying 90% subsidiary using it for a qualifying activity, and EIS money cannot be used to buy all or part of another business. Paying off founders or buying out early shareholders with investment money is a classic mistake.
Agreeing investor protections that reduce risk
Angels sometimes ask for side letters, guaranteed minimum returns, buyback rights or security over assets. Any arrangement that protects the investor from risk, gives one investor priority over others or provides an exit route can break the risk to capital condition or the share requirements. Review all side arrangements before completion and disclose them in the advance assurance application and compliance statement.
Inserting a new holding company carelessly
Reorganisations, such as inserting a new holding company before a larger round or a US flip, can end qualifying status for existing shares unless specific conditions are met. The company must also stay independent, so becoming a subsidiary of another group during the three-year period usually withdraws relief. Plan reorganisations with tax advice and, where relevant, seek HMRC clearance.
Cross-border angle
Overseas companies can use SEIS and EIS if they have a UK permanent establishment or are established in the UK and meet the other conditions, but the reliefs are only valuable to investors with UK income tax and capital gains tax liabilities. Founders from Bangladesh who set up a UK company to raise angel funding should make sure the trade is genuinely carried on through the UK company, not through a Bangladeshi affiliate, and consider tax residence and exchange control. Our guide on a UK company for Bangladeshi founders explains the structure, and our guide to setting up a company in the UK covers incorporation.
Checklist for founders
- Confirm that the company and trade qualify, including excluded activities and the age tests.
- Check the gross assets, employee numbers and funding history of the whole group.
- Draft articles with ordinary shares that meet SEIS EIS requirements, and separate classes for non-qualifying investors.
- Apply for advance assurance with complete, accurate documents.
- Receive money before issuing shares; issue SEIS shares before EIS shares.
- Track spending, file compliance statements on time and diarise the three-year period.
TRW & Co's venture capital solicitors in London prepare SEIS EIS funding rounds, and our tax solicitors advise on advance assurance and reorganisations. For help with a round, contact us at info@trw.co.
Frequently asked questions
01What is the difference between SEIS and EIS?
SEIS is for very early companies: those with gross assets of no more than £350,000, fewer than 25 employees and a trade no more than three years old. It gives investors 50% income tax relief on up to £200,000 a year, and the company can raise up to £250,000 in total. EIS is for larger and later-stage companies, giving 30% relief on up to £1 million a year, or £2 million for knowledge-intensive investment. Both offer capital gains tax exemption on qualifying shares held for three years and loss relief.
02Can a company use both SEIS and EIS?
Yes, and many do. A company often raises a first round under SEIS and later rounds under EIS, or both in the same round. The order matters: once a company has issued EIS shares, it can no longer issue SEIS shares, so SEIS shares must be issued first. Amounts raised under SEIS count towards the overall EIS limits. Founders should plan the timing and documents carefully, and many seek separate advance assurance for each scheme.
03Is advance assurance required?
No, it is optional, but most angel investors expect it. Advance assurance is HMRC’s view that a proposed share issue is likely to meet certain scheme conditions, based on the information provided. The company applies online with its business plan, forecasts, articles, register of members, investor documents and, usually, details of prospective investors. It does not confirm that individual investors qualify, and it may not apply if circumstances change before shares are issued. The compliance statement is still needed after the issue.
04When can investors claim their tax relief?
Investors can only claim once they have received a compliance certificate from the company. The company first submits a compliance statement to HMRC: SEIS1 once the trade has run for four months or 70% of the money has been spent, or EIS1 once the qualifying activity has run for four months. If HMRC agrees, it provides a unique reference and certificates, SEIS3 or EIS3, which the company completes and issues to investors. Investors then claim through their tax return or by asking HMRC to adjust their tax code.
05What happens if the company stops qualifying?
If the company breaches a condition during the three-year period, investors’ relief can be withdrawn or reduced, and HMRC can recover the tax already relieved. Common triggers include a sale of the company, becoming a subsidiary, switching to an excluded activity, returning value to shareholders and failing to spend the money on time. The company must tell HMRC within 60 days of such an event. A transaction that may affect qualifying status should be checked before it is agreed.
06Can directors invest under SEIS or EIS?
Under SEIS, directors can claim relief provided they are not otherwise connected, for example by holding more than 30% of the shares or votes with associates. Under EIS, paid directors generally cannot claim relief, although payments such as reasonable expenses and normal commercial rent are permitted, and business angels who become paid directors after investing can sometimes keep or obtain relief. Employees who are not directors cannot claim. The connection rules apply for set periods before and after the investment, so check them before appointment.
Sources and official materials
- HMRC: Apply to use the Seed Enterprise Investment Scheme — SEIS company conditions and compliance statement
- HMRC: Apply to use the Enterprise Investment Scheme — EIS company conditions and limits from April 2026
- HMRC: Apply for advance assurance — Advance assurance process and required documents
- HMRC: Tax relief for investors using venture capital schemes — Investor reliefs, limits and connection rules
- HMRC Venture Capital Schemes Manual — Detailed technical guidance on SEIS, EIS and VCTs
- Income Tax Act 2007, Part 5 — EIS legislation
- Income Tax Act 2007, Part 5A — SEIS legislation
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.