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EIS (Enterprise Investment Scheme)

What is an EIS Investment?

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The Enterprise Investment Scheme (EIS) is a UK government initiative launched in 1994 to encourage investment into early-stage, high-growth companies. It provides generous tax reliefs to investors who buy shares in qualifying unlisted businesses.

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The goal is to support UK entrepreneurship and innovation by helping small companies raise vital capital, while offering investors a way to reduce risk and enhance returns.

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How Does EIS Work?

When you invest in an EIS-eligible company, you buy new ordinary shares directly in the business. If the company meets the criteria set out by HMRC, you can benefit from a range of attractive tax reliefs.

You must hold the investment for at least three years to retain these benefits.

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Key Tax Benefits of EIS:

  1. 30% Income Tax Relief

    • You can claim back 30% of your investment against your income tax bill.

    • Example: If you invest £50,000, you can reduce your tax bill by £15,000.

  2. No Capital Gains Tax (CGT)

    • If you hold the shares for 3+ years and the company is successful, any profits you make are tax-free.

  3. Capital Gains Deferral Relief

    • You can defer capital gains tax on other assets if you reinvest the gains into an EIS company.

  4. Loss Relief

    • If the investment fails, you can offset the loss against your income or capital gains tax.

    • This reduces the net risk significantly.

  5. Inheritance Tax Relief (IHT)

    • After two years, EIS shares typically qualify for 100% relief from IHT through Business Relief, provided they’re still held at death.

Who Can Invest in EIS?

  • UK taxpayers looking for tax-efficient investment options.

  • High-net-worth individuals, entrepreneurs, or professionals seeking exposure to early-stage opportunities.

  • Investors with CGT liabilities who want to defer or shelter capital gains.

  • Estate planners aiming to reduce inheritance tax.

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Note: Investors must be "qualifying individuals" and not be connected with the company (i.e., not employees or substantial shareholders).

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Why People Invest in EIS:

1. Tax Efficiency

  • EIS is one of the most tax-advantaged investments in the UK.

  • Combining income tax relief, CGT relief, and IHT exemption makes it very attractive.

2. High-Growth Potential

  • EIS companies are typically innovative, early-stage businesses in sectors like tech, renewable energy, biotech, fintech, etc.

  • These companies often offer high growth potential—and therefore, strong upside returns.

3. Diversification

  • EIS offers exposure to private, unlisted companies, diversifying away from mainstream equities, bonds, and property.

4. Support for British Innovation

  • Many investors like knowing their capital supports entrepreneurial, job-creating businesses across the UK.

5. Risk Mitigation

  • Between the 30% upfront relief, loss relief, and CGT benefits, the effective risk of investing is significantly reduced.

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EIS in Numbers (2023 snapshot):

  • Over £2.5 billion raised under EIS in the past five years.

  • Over 4,000 companies receive EIS investment annually.

  • Technology, life sciences, and sustainability sectors dominate EIS opportunities.

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Conclusion

The Enterprise Investment Scheme (EIS) is one of the most powerful tools for tax-efficient investing in the UK, offering both attractive returns and significant downside protection. While it’s not suitable for everyone, for those with tax liabilities, a long-term investment horizon, and a desire to back innovative, high-growth companies, EIS is a compelling option.

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To find out more information, please call 0208 135 0901 or book a call using the button below.

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