EIS and SEIS: How to Make Your Investments Tax-Efficient

The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are government-backed schemes designed to encourage investment in small and early-stage businesses. They are particularly attractive because of the tax reliefs they offer, both for Income Tax and Capital Gains Tax (CGT).

I often speak to investors who are interested in these schemes but aren’t sure how to claim the reliefs, or what the pitfalls might be. This blog explains how EIS and SEIS work, how you can claim reliefs, and how professional advice can help you avoid common issues.

How EIS and SEIS Work

• EIS: Designed for small, higher-risk companies that are slightly more established than SEIS startups.

• SEIS: Aimed at very early-stage companies, offering even more generous tax reliefs to encourage initial investment.

Key tax-efficient benefits include:

• Income Tax Relief

  • SEIS: 50% of your investment can reduce your income tax bill.

  • EIS: 30% of your investment can reduce your income tax bill.

• Capital Gains Tax Relief

  • Sell your shares after the minimum holding period (usually three years) and any gain is CGT-free.

  • Deferring CGT: With EIS, you can postpone paying tax on gains from other assets by reinvesting them into EIS shares. For example, if you sold a property and made a gain of £50,000, you could reinvest that gain into EIS shares and defer the CGT until you eventually sell the shares. This can be particularly useful if you want to manage your tax bill in a high-income year.

Claiming the Reliefs

There are two main ways to claim EIS and SEIS reliefs:

1. Via Your Self-Assessment Tax Return

   • Report your investment and the reliefs you are claiming.

   • Include the company details, investment amount, and relief claimed.

2. Using the EIS1 / SEIS1 Form

   • The company you invest in issues the official form once HMRC registration is complete.

   • This form allows you to claim the relief directly with HMRC, which can speed up the process and reduce errors.

Tip: Keep all documentation safe — HMRC may ask for proof of investment and the company’s eligibility.

Common Issues Investors Face

Even though EIS and SEIS are highly tax-efficient, there are some common problems we see:

• Form Errors: Mistakes on the EIS1/SEIS1 can delay relief or trigger HMRC queries.

• Ineligible Investments: Relief may be denied if the company doesn’t meet HMRC criteria.

• Timing Issues: Reliefs are only available once shares are issued and the company qualifies. Claiming too early can result in rejection.

• Record Keeping: HMRC may request detailed proof of investment, so accurate records are essential.

How Professional Advice Helps

Working with a professional can make a big difference. We can help you:

• Complete forms correctly and ensure relief is maximised.

• Plan investments to offset income or defer CGT efficiently.

• Stay compliant with HMRC rules and deadlines.

With guidance, you can avoid common errors, reduce delays, and make the most of the available reliefs.

Key Takeaways

• EIS and SEIS can help reduce income tax and defer or eliminate capital gains tax.

• SEIS offers higher income tax relief (50%) than EIS (30%).

• Holding shares for at least three years is essential for CGT-free gains.

• Deferring CGT can benefit anyone who has realised significant gains in a tax year.

• Accurate records and correct forms (EIS1/SEIS1) are crucial.

• Professional advice can save time, avoid mistakes, and maximise tax benefits.

Conclusion

EIS and SEIS are excellent ways to support small businesses while enjoying significant tax reliefs. By understanding how to claim reliefs correctly, and with professional guidance, you can fully benefit from these schemes while avoiding common pitfalls.

If you’re considering EIS or SEIS investments, or need help claiming reliefs, please contact us — we can guide you every step of the way.