This is available to individuals only, who subscribe for (although this can be through a nominee) shares in an Enterprise Investment Scheme (EIS). Relief is at 30 per cent of the cost of the shares, to be set against the individual’s Income Tax liability for the tax year in which the investment was made.

Before 6 April 2011 relief was at 20 per cent of the cost of the shares, and before 6 April 2012 there was a minimum investment of £500.

Relief can be claimed up to a maximum of £1,000,000 invested in such shares, giving a maximum tax reduction in any one year of £300,000 providing you have sufficient Income Tax liability to cover it.

There is a ‘carry back’ facility which allows the all or part of the cost of shares acquired in one tax year, to be treated as though those shares had been acquired in the preceding tax year. Relief is then given against the Income Tax liability of that preceding year rather than against the tax year in which those shares were acquired. This is subject to the overriding limit for relief for each year.

See VCM10530 on the HM Revenue & Customs website, for more information about how the relief works to reduce Income Tax liability.

The shares must be held for a certain period or Income Tax relief will be withdrawn. Generally, this is three years from the date the shares were issued. But if the qualifying trade started after the shares were issued, the period is three years from the date the trade actually started.

Income Tax relief can only be claimed by individuals who are not ‘connected’ with the company. (See ‘Connection with the company’ at paragraph 1.3).


This is available to individuals and trustees of certain trusts. The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company. The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose.

There are no minimum or maximum amounts for deferral. And it does not matter whether the investor is connected with the company or not. Unconnected investors may claim both Income Tax and capital gains deferral relief.

There is no minimum period for which the shares must be held; the deferred capital gain is brought back into charge whenever the shares are disposed of, or are deemed to have been disposed of under the EIS legislation.


A financial interest in the company, or in any subsidiary of the company, can make you connected with it. If you control the company, or hold more than 30 per cent of the share capital or voting rights, you are connected with the company. If you are entitled to more than 30 per cent of the assets in the event of a winding up you are also connected; note that in looking at entitlement to assets, loans to the company are taken into account.

These conditions apply throughout the period beginning two years before the issue of the shares and ending three years after the issue (or three years after the commencement of the trade if that followed the share issue). So if you take a 15 per cent stake and are given Income Tax relief, and a year later you take an additional 20 per cent stake, you have become connected, and the relief will be withdrawn.

Shareholdings/voting rights/rights to assets in a winding up held by your associates are also taken into account. Associates are defined as business partners, trustees of any settlement where you are a settlor or beneficiary, and relatives. Relatives are spouses or civil partners, parents and grandparents, and children and grandchildren; brothers and sisters are not counted as associates for the purpose of the Enterprise Investment Scheme (EIS).


Gross investment £100,000
Less Income Tax relief (30% of £100,000) £30,000
Cost of investment £70,000
Capital Gains Tax liability deferred *£28,000
Net initial cost of Investment £42,000

* CGT assumed at 40%, the gain is deferred until there is a chargeable event, such as a disposal of EIS shares or, if earlier, a breach of the E.I.S. rules.


If you are a partner, director (though see ‘Business Angels‘ below) or an employee of the company, you are connected with it. You are also not eligible for relief if an associate (see above) is so connected. As with connection because of an interest in the company, this restriction applies not only at the time the shares were issued but to the two year period before the shares were issued and the three years after the issue (or the three years after the commencement of the trade if that followed the share issue).


However there is an exception for directors who are ‘Business Angels’. Where your only connection with the company is as a director who receives no remuneration (and is not entitled to such remuneration), and you had not previously been involved in carrying on the trade the company is carrying on at the time it issues the relevant shares, an investment may qualify for Income Tax relief.

That relief is not withdrawn if you subsequently become a paid director, providing the remuneration is reasonable. You can also claim Income Tax relief on investments made after becoming a paid director, providing that either:

  • those shares are issued during the period as covered at paragraph 1.2.1 above relating to the shares issued before you became a paid director
  • or that the shares are issued before the third anniversary of the date of issue of shares in respect of which you qualified for relief under the Seed Enterprise Investment Scheme (SEIS)

See VCM11000+ for further information about the connection rules.


If the shares are disposed of at a loss, you can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains.


Released value of shares £0 (nil)
Gross investment in shares £10,000
Less: Income Tax relief at 30% £3,000
Loss before Tax relief £7,000
Tax relief at 40% *£2800
Net cost of Investment (loss) £4,200

*Assumed net loss offset against other income taxable at 40% as opposed to chargeable gains which are taxable at 28%.

See VCM70000 for more information about share loss relief.