Why Every UK Founder Should Understand SEIS & EIS

When raising funds for a startup in the UK, it’s essential that founders understand the role of tax-efficient investment schemes like SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme). These two HMRC-approved initiatives are not only well-known among angel investors and early-stage venture capitalists, but they can also significantly increase your chances of closing a funding round - especially during the riskiest stages of company growth.

This article provides an in-depth, practical guide to SEIS and EIS, explaining how they work, who qualifies, why investors value them and how founders can use them effectively when fundraising.

What Are SEIS and EIS?

SEIS and EIS are UK government tax relief schemes introduced by HMRC to encourage private investment into small, high-risk businesses. By reducing the personal financial risk for investors, these schemes make it easier for early-stage companies to raise money.

Both schemes offer income tax relief, capital gains benefits and loss relief to investors. While they both serve a similar purpose, they are each designed for different stages of a company’s journey:

Seed Enterprise Investment Scheme (SEIS)

• For very early-stage companies, typically at the pre-seed or seed stage.
  

• Investors can claim up to 50% income tax relief on investments up to £100,000 per tax year.
  

• Companies can raise a maximum of £250,000 through SEIS.
  

• Shares must be held for at least three years to qualify for full relief.
  

• Investors also benefit from Capital Gains Tax (CGT) exemption and loss relief if the business fails.
  

Enterprise Investment Scheme (EIS)

• Designed for growth-stage companies looking to scale.
  

• Investors receive 30% income tax relief on investments up to £1 million per year, or up to £2 million if the company is knowledge-intensive.
  

• Companies can raise up to £12 million through EIS (or £20 million for knowledge-intensive businesses).
  

• CGT exemption applies after three years.
  

• EIS shares can also offer loss relief, which can be offset against income or capital gains.
  

Key Differences Between SEIS and EIS

Why Investors Value SEIS and EIS

SEIS and EIS reduce the financial risk associated with investing in early-stage ventures. This makes them highly attractive to private investors, particularly angel investors and family offices.

Investor Benefits:

1. Tax Relief: Substantial income tax relief on invested capital.
   

2. Capital Gains Exemption: No CGT on profits from qualifying shares.
   

3. Loss Relief: If the company fails, investors can offset the loss against their income tax.
   

4. Deferral of Capital Gains: For EIS, investors can defer CGT on other gains if they reinvest into an EIS-eligible company.

By offering generous tax advantages, these schemes increase the pool of willing investors and can tilt decisions in favour of riskier but innovative startups.

Advance Assurance: Why It Matters

Before raising SEIS or EIS funds, many startups apply for Advance Assurance which is a form of pre-approval from HMRC indicating that the company is likely to qualify for the scheme.

Benefits of Advance Assurance:

• Demonstrates to investors that your company qualifies for SEIS/EIS.
  

• Reduces uncertainty and builds credibility.
  

• Speeds up fundraising by removing a common objection.
  

Requirements for Advance Assurance:

• A business plan and financial forecasts.
  

• Cap table and shareholder breakdown.
  

• A description of your trade and how funds will be used.
  

• Evidence of a potential investor (a letter of intent or email is often enough).
  

Advance Assurance is not legally required, but many investors will not proceed without it. Some venture capital firms and angel networks include it as a checklist item before engaging.

Can Companies Use Both SEIS and EIS?

Yes, founders often structure funding rounds to take advantage of both schemes, but they must be used in the correct order.

How It Works:

1. Raise your first £250,000 under SEIS.
   

2. Once SEIS shares are issued, subsequent funding can qualify for EIS.
   

3. You must issue SEIS shares first (even if only one day before the EIS round).
   

4. You cannot issue EIS shares before SEIS shares if you want investors to claim SEIS relief.
   
   

To remain compliant:

• Use separate share certificates and clearly distinguish share issue dates.
  

• Track the allocation of funds carefully to avoid disqualifying either round.

Qualifying Criteria for Startups

To be eligible for SEIS or EIS, your company must meet several conditions:

For SEIS:

• Less than 3 years old.
  

• Fewer than 25 employees.
  

• Gross assets under £350,000.
  

• Permanent establishment in the UK.
  

• Not trading on a recognised stock exchange.
  
  

For EIS:

• Less than 7 years old (10 years for knowledge-intensive companies).
  

• Fewer than 250 employees.
  

• Gross assets under £15 million.
  

• Not previously raised more than £12 million under EIS.
  

In both cases, the funds raised must be used for a qualifying trade and within a specified time:

• SEIS: Funds must be spent within 3 years.

• EIS: Funds must be spent within 2 years.
  

Disqualifying activities include property development, banking, legal services, and some financial services.

How to Leverage SEIS/EIS in Fundraising

1. Build a SEIS/EIS-Ready Data Room

Ensure all necessary documents are easily accessible for investors:

• Advance Assurance letter.
  

• Business plan and use of funds.
  

• Capitalisation table.
  

• SEIS/EIS share certificates and compliance statements.
  
  

2. Include SEIS/EIS in Pitch Decks

Many investors may not be familiar with the schemes. Include a slide explaining:

• The tax relief available.
  

• Confirmation of Advance Assurance.
  

• Guidance on how they can claim relief post-investment.
  
  

3. Use Specialist Support

HMRC’s rules can be technical and change periodically. Working with accountants or legal services experienced in SEIS/EIS can:

• Avoid costly mistakes.
  

• Ensure your application is robust.
  

• Save time navigating documentation.
  
  

Services like SeedLegals, Startups.co.uk and Sleek UK offer affordable solutions for managing SEIS/ EIS compliance.

Common Mistakes to Avoid

SEIS & EIS Eligibility Checklist

✅ Do you have a permanent establishment in the UK?
✅ Does your company meet employee and asset limits?
✅ Are you operating a qualifying trade?
✅ Have you obtained (or applied for) Advance Assurance?
✅ Are funds allocated to eligible uses (e.g. product development, hiring)?
✅ Is your cap table investor-friendly and compliant?

If you answered yes to all, you’re likely in a strong position to benefit from SEIS or EIS.

A Strategic Tool, Not Just a Tax Relief

While SEIS and EIS are often discussed in terms of tax benefits, they’re much more than that. These schemes can accelerate your fundraising efforts, open doors to more investors and give you a competitive advantage when scaling your startup.

Founders who embed SEIS/ EIS planning into their early fundraising strategy signal professionalism, foresight, and credibility. In a competitive investment landscape, that could make all the difference.

What Are EIS, SEIS, and VCT Schemes—and Why Do They Matter for Tax-Efficient Investing?

Let’s break it down: the world of tax-efficient investing offers three main acronyms you’ll want to keep handy—EIS (Enterprise Investment Scheme), SEIS (Seed Enterprise Investment Scheme), and VCT (Venture Capital Trusts). These schemes aren’t just a mouthful; they’re practical tools designed to encourage investment in small, early-stage, and high-growth companies that might not otherwise catch your eye.

Here’s how they work in your favour:

EIS and SEIS: These government-backed initiatives are all about helping innovative startups and early-stage enterprises raise money. In return for taking a punt on these ventures, investors can receive generous perks like income tax relief, capital gains tax exemption (in some circumstances), and even a shield against inheritance tax after a holding period. SEIS is tailored for the youngest, riskiest new businesses, whereas EIS broadens the net to include slightly more mature ones.

VCTs: Venture Capital Trusts are a bit different. These are publicly listed companies that pool money from multiple investors to build a portfolio of fast-growing, unlisted UK businesses. Investing in VCT shares can unlock attractive tax advantages (including income tax relief and tax-free dividends), making them a compelling option—especially if you’re keen to back British innovation but prefer a basket to picking individual eggs.

In essence, these schemes offer a win-win: companies gain much-needed funding, and you get a suite of tax breaks that can take some of the sting out of backing more adventurous business ideas. The government tweaks the rules every so often—such as adjusting qualifying limits or tax relief rates—so it pays to keep an eye on the latest changes if you’re considering these routes.

What Makes a Company Eligible for EIS, SEIS, or VCT?

To qualify for EIS (Enterprise Investment Scheme), SEIS (Seed Enterprise Investment Scheme), or VCT (Venture Capital Trust) status, a company must satisfy several criteria set out by HMRC:

• Trading Status: The business must carry out a qualifying trade. Most trades are acceptable, but certain activities like banking, insurance, and property development are excluded.

• Permanent Establishment: The company needs to have a permanent base in the UK.

• Age Limits: For SEIS, the company must be less than two years old. EIS companies must be within seven years of their first commercial sale (with a few exceptions).

• Gross Assets: Before any investment, the company’s gross assets must fall below specific thresholds—£200,000 for SEIS and £15 million for EIS/VCT.

• Number of Employees: SEIS-qualifying companies can have up to 25 full-time employees; EIS and VCT, up to 250.

• Independence: The company cannot be controlled by another company, nor can it control other companies that are not subsidiaries.

For more in-depth guidance on these and other requirements, HMRC’s detailed guidance is the go-to resource. Always check the latest eligibility criteria before planning an investment.

Understanding HMRC ‘Advance Assurance’

Before diving into EIS, SEIS, or VCT investments, you might come across the term "advance assurance" from HMRC. But what does it mean for you as an investor—and why should you care?

Advance assurance is essentially a thumbs-up from HMRC indicating that, based on the company's plans and structure, the investment should meet the rules for valuable tax reliefs like EIS or SEIS. This isn’t a cast-iron guarantee—think of it more as a preliminary seal of approval. Many investors ask to see this confirmation before parting with their cash, as it reduces the risk that the promised tax benefits might vanish later on.

If HMRC gives the nod, the company will issue a certificate (called an EIS or SEIS3, depending on the relief), usually within a couple of months. This certificate is what you’ll need to actually claim your tax break. Patience is key, though—there’s often a wait between putting in your money and receiving the paperwork.

In a nutshell: asking for advance assurance isn’t just smart—it’s an essential step to help safeguard your investment’s tax efficiency.

Qualifying criteria for EIS, SEIS, and VCT investors

Navigating the eligibility rules for EIS, SEIS, and VCT can feel a bit like deciphering the instructions to assemble a particularly cryptic flat-pack wardrobe—one wrong move and nothing fits. The criteria for who can claim tax relief through each scheme vary, and here’s how it breaks down:

• Employment status: For both EIS and SEIS, employees of the investee company are not permitted to invest and claim relief. However, with VCTs (Venture Capital Trusts), employees can become investors.

• Directors: Directors usually can’t invest in EIS unless they qualify under the rather intricate Business Angel rules (picture a labyrinth, but with more paperwork). SEIS and VCTs are more welcoming—directors are eligible to claim relief provided they meet the other requirements.

• Investment stake limits: For EIS and SEIS, you (and your associates—which includes spouses, business partners, and close family, but oddly not siblings) must not hold more than 30% of the shares in the business. For VCTs, your individual holding must only represent a small slice of the pie.

• Existing shareholders: If you’re already a shareholder and fancy topping up, EIS generally says no, unless you’re just holding subscriber shares. SEIS and VCTs, on the other hand, let you invest even if you already own shares.

In short: while all three schemes offer tempting tax incentives, the rules about who can invest and still benefit aren’t one-size-fits-all. Always check the fine print (and perhaps your family tree) before parting with your cash.

Who Can Invest? Employees, Directors, and Shareholders

When it comes to investing in EIS, SEIS, or VCT, there are some important rules on who qualifies—and a few catches to keep an eye on:

• Employees: Generally, employees are not eligible to invest through EIS or SEIS if they work for the company in question. However, employees can invest in Venture Capital Trusts (VCTs).

• Directors: The rules for directors differ. Directors can invest under SEIS and VCT. For EIS, it’s more complicated: directors are usually excluded, but there are some exceptions involving so-called 'Business Angel' investors who join the board after making their investment.

• Existing Shareholders: If you already hold shares in the company, the door isn’t always closed. Under EIS, only those who initially subscribed for their shares may be eligible. SEIS and VCTs are a bit more flexible, typically allowing investments from existing shareholders.

It’s also worth noting there are limits on how much you and your close associates—spouses, business partners, and certain relatives—can hold, particularly for EIS and SEIS (usually capped at 30%).

Understanding these eligibility rules is crucial before investing, as non-compliance can mean missing out on valuable tax reliefs. Be sure to check the finer details or get advice tailored to your situation.

Annual Investment Limits at a Glance

When it comes to how much you can invest each tax year, here’s what you need to know:

• SEIS (Seed Enterprise Investment Scheme): You can put in up to £200,000 annually and enjoy up to 50% income tax relief on your investment.

• EIS (Enterprise Investment Scheme): The standard annual limit here is £1 million with 30% income tax relief. However, if you invest in “knowledge intensive companies” (KIC), you can push that up to £2 million.

• VCT (Venture Capital Trust): You’re able to invest up to £200,000 per year. The current tax relief is 20%, but be aware this drops from the longstanding 30% starting April 2026.

Keep these figures in mind as you plan your investment strategy for the year—tax reliefs can make a sizeable difference to your returns.

Key Steps Before Investing in EIS, SEIS, or VCT

Before diving into tax-advantaged investments like EIS, SEIS, or VCT, take a moment to assemble your checklist. First, have a conversation with your tax and financial advisers—think of it as a pre-flight check for your portfolio. They can help ensure the opportunity suits your circumstances and you’re not caught out by hidden turbulence.

Next, ask the company for HMRC’s “advance assurance” letter. While this document isn’t a golden guarantee that you’ll get the relevant tax reliefs, it does show that HMRC has, in principle, reviewed the investment and believes it should qualify.

After you’ve invested and the dust has settled, be patient. HMRC needs to formally approve the investment and issue you a certificate (sometimes after several months). This certificate is your ticket: you’ll need it to claim your tax reliefs, so stow it somewhere safe and expect a bit of a wait between committing funds and getting your paperwork.

CGT Exemptions and Reliefs for EIS, SEIS, and VCT Investments

Let’s unravel the mystery of capital gains tax (CGT) reliefs when it comes to your EIS, SEIS, and VCT investments—a trifecta that can make Her Majesty’s Revenue and Customs a little less fearsome.

EIS (Enterprise Investment Scheme)

• Complete CGT Exemption: If you’ve held onto your EIS shares for at least three years and claimed income tax relief (and not had it withdrawn), then any capital gains when you sell those shares are blissfully free from CGT.

• Deferral Relief: Did you realize a capital gain up to three years before or one year after subscribing for EIS shares? You can pause payment of the CGT by “deferring” it. It won’t vanish forever, but you can shelve it until you sell your EIS shares (or, say, move abroad), at which point you’ll pay the prevailing rate.

• Loss Relief: If, unfortunately, your EIS shares dip below their original value, you can offset that loss against either your CGT bill or your income tax bill—every little bit helps.

SEIS (Seed Enterprise Investment Scheme)

• Full CGT Exemption: As with EIS, hold your SEIS shares for three years and you won’t owe CGT on gains, provided you’ve claimed and kept the income tax relief.

• Reinvestment Relief: If you’ve recently cashed in another asset for a gain, investing the proceeds into SEIS can exempt up to half that gain—so, invest £100,000 and (potentially) wave goodbye to £50,000 in CGT.

• Loss Relief: Sadly, if the start-up dream goes south, SEIS lets you offset any loss against your income or other gains.

VCT (Venture Capital Trust)

• Automatic CGT Exemption: Sell your VCT shares (acquired with genuine commercial intent) and walk away without paying CGT on any profit, no three-year wait required.

• No Deferral or Loss Relief: VCT doesn’t offer ways to defer existing gains, nor can you offset VCT losses against your income or other gains—but the up-front CGT exemption still packs a punch.

At a Glance

• Hold EIS/SEIS shares for 3+ years? No CGT on gains (if income tax relief is intact).

• EIS: Extra—ability to defer gains; loss relief available.

• SEIS: Extra—can exempt up to 50% of reinvested gains; loss relief available.

• VCT: Simpler—CGT exemption only, no deferral or loss relief.

Whether you’re targeting the next fintech unicorn via SEIS, backing scale-ups with EIS, or diversifying through VCTs, the CGT breaks can be significant—just keep an eye on those timelines and relief conditions.

What If Shares Are Sold Too Soon or the Company Loses Qualifying Status?

Dispose of your EIS, SEIS, or VCT shares before the required holding period (typically three to five years), or if the company loses its qualifying status during this time, and HMRC will want a word. In short: the income tax relief you previously received can be reversed, meaning you'll have to pay it back. The tax advantages only stick if you hold onto those shares long enough and the company continues to meet the relevant scheme rules.

Updates to EIS, SEIS, and VCT Limits and Tax Reliefs

For those navigating the alphabet soup of venture capital tax schemes, the 2025 Budget threw in some notable tweaks worth highlighting:

• VCT (Venture Capital Trusts): From April 2026, the maximum investment qualifying for income tax relief will increase—but the relief itself drops from 30% to 20%. This means your eligible investment cap rises, but the upfront tax break shrinks.

• SEIS (Seed Enterprise Investment Scheme): Offers the juiciest income tax relief at 50%, still capped at £200,000 per tax year. No adjustment to either rate or threshold was announced, so SEIS remains attractive for early-stage investing.

• EIS (Enterprise Investment Scheme): Investors continue to receive 30% income tax relief on up to £1 million per year—or up to £2 million if the additional sum backs a 'knowledge intensive company' (KIC). While the annual limits increase, the relief percentage holds steady.

• Inheritance Tax Implications: From April 2026, for assets qualifying for Business Relief or Agricultural Relief—including qualifying shares held through EIS and SEIS—the first £1 million in value is fully exempt. Above that, a 50% relief kicks in, effectively creating a 20% tax rate on value beyond the cap.

• VCT and IHT: Still no inheritance tax relief for VCT shares under the new rules.

In summary: greater investment capacity across these schemes, but mind the dial-down on upfront relief (especially for VCTs) and new limits on inheritance tax relief from April 2026.

How to Invest in Companies Eligible for EIS, SEIS, or VCT Tax Reliefs

Thinking about investing in companies that qualify for EIS, SEIS, or VCT tax incentives? Here’s what you’ll need to know before getting started:

• Seek Professional Guidance
  Always kick off by having a chat with your tax and financial adviser. The rules around these schemes can be trickier than a London roundabout at rush hour, and good advice is worth its weight in gold.

• Request “Advance Assurance”
  Before you put a penny in, ask the company for the “advance assurance” letter from HMRC. This isn’t a cast-iron guarantee of tax relief — think of it more like a comforting nod from the taxman that the company is aiming in the right direction.

• Subscribe and Wait
  After your investment, there’s usually a bit of a waiting game. HMRC approval doesn’t happen overnight, and investors typically receive a special certificate confirming eligibility for tax relief a few months down the line.

• Claim Your Tax Relief
  Don’t forget: you can’t claim any of those tasty reliefs until you’ve got the certificate in hand. Sometimes it takes longer than expected, so pack a bit of patience along with your paperwork.

With these steps, you’ll be well on the road to investing in EIS, SEIS, or VCT-qualifying companies — with fewer surprises along the way.

SEIS Reinvestment Relief: How It Works for Capital Gains Tax

SEIS investors who have made capital gains can take advantage of a government incentive known as reinvestment relief. This relief allows individuals to permanently exempt a portion of their capital gains from Capital Gains Tax (CGT) when they invest in qualifying SEIS shares.

Here’s the key detail: you can exempt the lower of 50% of your original gain or 50% of the amount you invest through SEIS. For example, if you’ve realised a gain of £100,000 and invest at least £200,000 in SEIS shares, you could fully exempt that £100,000 gain from CGT—rather than just postponing the tax as is the case with EIS.

A crucial requirement to remember is that the gain you wish to exempt must be realised in the same year you claim SEIS income tax relief. This timing rule is key to unlocking the full benefit of the scheme.

EIS Deferral Relief: How It Works

EIS deferral relief offers investors a clever way to manage capital gains tax when investing in qualifying companies through the Enterprise Investment Scheme. Essentially, if you’ve made a capital gain—say, from selling shares or property—you can defer paying tax on that gain by reinvesting the amount into new EIS shares.

Here’s how the process typically unfolds:

• Timing Flexibility: You can defer gains made in the three years before, or up to one year after, you acquire your EIS investment.

• How Deferral Relief Functions: The tax due on those gains is postponed, not wiped out. This means you won’t pay capital gains tax right away; instead, it becomes due later when one of several "trigger events" occurs—such as selling the EIS shares or no longer being a UK tax resident.

• Interaction with Other Reliefs: To enjoy the full suite of EIS tax perks—including exemption from capital gains tax after three years—you must claim and retain income tax relief on your subscription. If you later lose that relief, the exemption and other benefits may no longer apply.

• Investment Limits: While there’s a £1 million cap on how much EIS income tax relief you can claim annually, there’s no ceiling for deferral relief purposes—the deferred amount can exceed £1 million if your gains do.

Deferral relief is particularly attractive to higher-rate taxpayers, who would otherwise face capital gains tax rates of up to 24% for most assets (or 32% for carried interest). By making a qualifying EIS investment, you gain some breathing space and could potentially reduce your tax bill—provided you navigate the qualifying rules with care.

Claiming Loss Relief on EIS and SEIS Investments

Losses on EIS and SEIS investments offer the potential for additional tax relief if things don't go as planned. If you dispose of your shares at a loss—after accounting for any income tax relief you’ve already claimed—you can set the net loss against either your capital gains or, if you prefer, against your income for the year of disposal or the previous tax year.

Here's how the numbers generally stack up for a higher-rate taxpayer:

• Initial Subscription: Suppose you invest £100,000 in EIS or SEIS shares.

• Income Tax Relief: You claim 30% income tax relief on the EIS subscription, reducing your effective cost to £70,000.

• Disposal at a Total Loss: If those shares become worthless, you can claim the £70,000 loss.

• Loss Relief Options:

  • Offset against capital gains, or

  • Elect to offset against income—especially useful if you’re a 45% taxpayer.

• Extra Tax Benefit: At 45%, income tax relief on a £70,000 allowable loss saves you £31,500, dropping your effective loss to just £38,500.

This flexible relief helps soften the blow of a failed investment, making EIS and SEIS shares one of the more tax-efficient vehicles out there for those comfortable with higher risk.

Income tax reliefs for EIS, SEIS, and VCT from April 2026

If you’re curious about the tax breaks on offer for investors from April 2026, here’s a quick round-up of what’s available under EIS, SEIS, and VCT schemes:

• EIS (Enterprise Investment Scheme): You can claim 30% income tax relief on up to £1 million invested per year. For those backing companies classed as 'knowledge intensive', that maximum investment bumps up to £2 million. The relief can be set against your tax bill for the year you invest, or you can opt to carry it back to the previous tax year.

• SEIS (Seed Enterprise Investment Scheme): This scheme is more generous, offering 50% tax relief, but only on investments up to £200,000 per year. Like EIS, the relief can be applied to the investment year or the immediately preceding year.

• VCT (Venture Capital Trust): Income tax relief comes in at 20% of what you invest, up to £200,000 per year (down from 30% pre-April 2026). However, there’s no option to carry this back to a previous tax year.

A few important caveats:

• The relief is a tax reducer—not a refund—so it can only wipe as much off your bill as you owe, and no more.

• If you sell your shares or if the company loses its qualifying status within the required holding period (three years for EIS/SEIS, five years for VCT), you risk having the relief clawed back.

• VCTs uniquely offer tax-free dividends; EIS and SEIS do not.

• Losses on EIS and SEIS can be offset against your income, but this perk doesn’t apply to VCT investors.

Comparing Holding Periods for Tax Relief

When it comes to tax relief, the holding period—the minimum length of time you need to keep your investment to secure your benefits—varies depending on whether you choose EIS, SEIS, or VCT.

• EIS (Enterprise Investment Scheme): Investors must hold EIS shares for at least three years to retain income tax relief. Sell or dispose of your shares too early, and any tax savings will be claimed back by HMRC quicker than you can say “capital gains.”

• SEIS (Seed Enterprise Investment Scheme): The rules for SEIS mirror those of EIS—three years is the magic number. Exit before then, and not only is the party over, but so is your tax relief.

• VCT (Venture Capital Trust): Here’s where things get a little different. With VCTs, the required holding period stretches to five years to keep those income tax benefits. Cashing out early means the tax relief disappears—no exceptions.

In short: EIS and SEIS ask for a three-year commitment, while VCTs play the long game with five years. Plan your calendar (and your exit strategy) accordingly.

Inheritance Tax Relief: EIS, SEIS, and VCT Investments

When it comes to inheritance tax (IHT), certain investments offer helpful reliefs—though the rules are in for a shakeup from April 2026.

EIS and SEIS Shares

If you hold shares in companies qualifying under the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), you usually benefit from 100% IHT relief, provided you've owned the shares for at least two years and the company stays eligible. In other words, these shares can often be passed on without incurring any IHT.

But from April 2026, there’s a catch: total tax relief for business and agricultural assets—including those held in EIS and SEIS companies—will be capped at £1 million per person. Any value above that will only get 50% relief, meaning the effective IHT rate rises to 20% on the excess. The £1 million cap covers all your business and agricultural assets in total, not just EIS or SEIS, so you’ll need to keep an eye on your overall holdings. On the upside, if you don’t use your full allowance, it’s transferable to your spouse.

Venture Capital Trusts (VCTs)

Unlike EIS and SEIS, VCT shares don’t qualify for IHT relief. While VCTs offer attractive income and capital gains tax benefits, there’s no inheritance tax break—so these shares will be counted in full if you’re calculating the value of your estate for IHT purposes.

Income Tax Relief Carry Back: EIS, SEIS vs VCT

When it comes to carrying back income tax relief, the rules differ across the three main schemes—EIS, SEIS, and VCT:

• EIS and SEIS: Investors can opt to apply (or "carry back") some or all of their income tax relief to the tax year immediately preceding the year in which the investment was made. This means you can potentially offset tax paid in a prior year, offering greater flexibility for tax planning.

• VCT: In contrast, Venture Capital Trust (VCT) investments do not offer any carry back facility. Tax relief is granted only against the current tax year’s income tax liability—there’s no option to apply it to a previous year.

So, while EIS and SEIS both provide an opportunity to carry back relief, VCT is strictly limited to the year you invest.

Tax-Free Dividends with VCTs

One notable feature of Venture Capital Trusts (VCTs) is the tax-free status of dividends paid out to investors. Unlike Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) investments, where dividends are subject to income tax, VCTs allow you to receive dividends from your shares without paying any further tax—making them especially attractive for those seeking a regular, tax-efficient income stream.

To benefit from tax-free VCT dividends, you’ll need to hold your shares for at least five years. While the maximum annual investment eligible for these advantages is £200,000, all qualifying dividends within this limit remain exempt from income tax. This makes VCTs an interesting option for investors looking to supplement their income without increasing their tax bill.

Are VCT Shares Exempt from Capital Gains Tax?

Yes, Venture Capital Trust (VCT) shares are generally exempt from Capital Gains Tax (CGT), provided that the shares were purchased for genuine investment reasons and not as part of a tax avoidance arrangement. It’s important to note, however, that if you incur any losses from VCT shares, those losses can’t be set against income or capital gains for tax purposes.

FAQs

Can I use SEIS and EIS in the same round?
Yes, as long as SEIS shares are issued before EIS shares.

How long does Advance Assurance take?
Typically 4-6 weeks, but timelines vary.

Can company directors invest?
Yes. Directors can invest under SEIS or EIS, but with some restrictions. SEIS is more flexible for directors.

What if I don’t have an investor yet?
A letter of intent or a prospective investor email is usually enough to apply for Advance Assurance.

Can I lose eligibility after approval?
Yes. If your business changes significantly, or if you don’t follow HMRC rules, your company could become ineligible and investors may lose relief.