Enterprise Investment Scheme (EIS)
Direct investment into qualifying smaller UK companies with 30% income tax relief, CGT exemption after 3 years, CGT deferral, and loss relief. Very high risk but generous reliefs.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
You invest directly in qualifying small companies or through an EIS fund. You get 30% income tax relief. If it succeeds, gains are CGT-free after 3 years. If it fails, claim loss relief against income tax. You can also defer other capital gains by investing in EIS.
Tax Treatment
30% income tax relief. Gains CGT-free after 3 years. Losses can offset income tax. Existing capital gains can be deferred by reinvesting into EIS.
Tax Advantages
- 30% income tax relief on up to £1m per year
- Capital gains are CGT-free if held 3+ years
- Loss relief against income tax if the company fails
- CGT deferral on gains reinvested into EIS
Who Is This Suitable For?
Sophisticated investors and high earners comfortable with individual small company risk. The combination of reliefs provides substantial downside protection.
Worked Example: £50,000 spread across five EIS companies
- 1You invest £10,000 in each of five qualifying companies through an EIS fund and receive an EIS3 certificate for each.
- 2Income tax relief at 30% is £15,000, so your net outlay is £35,000 (capped at the income tax you actually paid).
- 3After the minimum three years, suppose two companies fail completely, two return exactly your money and one grows to £40,000.
- 4For each failure the allowable loss is £10,000 minus the £3,000 relief received = £7,000, which you can set against income or gains; the £30,000 gain on the winner is CGT-free.
Result: You receive £60,000 from a £35,000 net outlay before counting loss relief on the failures — but a different mix of outcomes could easily leave you behind.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- Loss relief softens the worst case twice: by the 30% relief and then by relief on the net loss.
- A gain on any asset can be deferred by reinvesting it into EIS shares, and only comes back into charge when they are sold.
- The £1 million annual limit (£2 million where the excess goes into knowledge-intensive companies) allows very large deferrals.
Drawbacks
- Most early-stage companies fail or return little, so the outcome depends on a few winners.
- There is usually no market for the shares, so you may be unable to sell even after three years.
- Relief is withdrawn if the company loses its qualifying status or you become connected with it within three years.
Notes for Limited Company Owners
You cannot claim EIS relief on shares in your own company, because directors and holders of more than 30% are connected. Directors who have sold a business often use EIS deferral to postpone CGT on the proceeds while backing other founders; check the connection rules before taking a paid directorship in a company you invest in.
Common Mistakes
- Investing in a company where you and your associates already hold more than 30% of the shares, which disqualifies you.
- Claiming relief before the EIS3 certificate has been received.
- Forgetting that a deferred gain resurfaces when the EIS shares are sold.
Who Should Avoid It
Anyone without an existing diversified portfolio, or who could not write the whole investment off without changing their plans.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
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Frequently Asked Questions
EIS vs VCT?
EIS is direct investment (higher risk/reward), VCTs are diversified funds. EIS offers loss relief and CGT deferral. VCTs offer tax-free dividends. EIS limit is £1m/year vs £200k for VCTs.
Can I invest in my own company?
Generally no. You cannot claim EIS relief if you own more than 30% of the shares or are an employee/director.
What is knowledge-intensive?
Companies spending 15%+ of operating costs on R&D with significant IP. These have a higher £2m annual EIS limit.