EIS, VCT and SEIS
💼 Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCTs) & Seed Enterprise Investment Scheme (SEIS)
For high earners looking to reduce their tax liability and gain exposure to early-stage UK businesses, the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCTs), and Seed Enterprise Investment Scheme (SEIS) offer powerful tax incentives. These government-backed schemes are designed to encourage investment in small, high-risk companies by offsetting some of the financial risk through generous tax reliefs.
🧾 Scheme Overview
| Feature | EIS | VCT | SEIS |
|---|---|---|---|
| Investment Type | Direct into individual qualifying companies | Listed trust investing in early-stage businesses | Direct into very early-stage companies |
| Income Tax Relief | 30% of the investment amount | 30% of the investment amount | 50% of the investment amount |
| Maximum Annual Investment | £1 million (£2m for KICs) | £200,000 | £200,000 |
| Capital Gains Tax (CGT) Relief | No CGT on gains after 3 years | No CGT on gains after 5 years | No CGT on gains after 3 years |
| CGT Deferral / Exemption | Deferral of CGT from other assets | No | 50% exemption on reinvested CGT |
| Loss Relief | Yes – offset against income or CGT | No | Yes – offset against income or CGT |
| Inheritance Tax (IHT) Relief | Yes – after 2 years (BPR) | No | Yes – after 2 years (BPR) |
| Minimum Holding Period | 3 years | 5 years | 3 years |
| Liquidity | Low | Higher (publicly listed, low volume) | Very low |
| Risk Profile | High | High | Very high |
🧮 Tax Benefits Explained
Income Tax Relief
All three schemes offer upfront income tax relief — 30% for EIS and VCT, and 50% for SEIS. This relief reduces your tax bill for the year you invest.
Capital Gains Tax (CGT) Relief
Provided minimum holding periods are met, any gains made are exempt from CGT. For SEIS, this applies after 3 years.
Capital Gains Deferral / Exemption
- EIS: You can defer CGT from other assets by reinvesting into EIS.
- SEIS: 50% of gains reinvested into SEIS can be exempted permanently.
- VCT: No CGT deferral.
Loss Relief (EIS & SEIS only)
If the company fails, you can offset the net loss (after income tax relief) against your income or CGT, reducing downside significantly. This only applies to EIS and SEIS — not VCTs.
❓ A Note on VCT Losses
VCTs do not qualify for loss relief like EIS and SEIS. Even if your VCT investment loses value, HMRC does not allow the loss to be offset against income or other capital gains. This is because:
- VCT shares are exempt from Capital Gains Tax (CGT)
- Assets that are CGT-exempt cannot also generate allowable losses
As a result, your downside is not tax-protected with VCTs in the same way as with EIS or SEIS — a key consideration when comparing strategies.
Inheritance Tax (IHT)
EIS and SEIS shares held for 2+ years may qualify for 100% Business Property Relief (BPR), removing them from your estate for IHT purposes.
⚠️ Risks and Considerations
- Illiquidity: EIS and SEIS shares are unlisted. VCTs are listed but thinly traded.
- Investment Risk: All three schemes involve high-risk or very high-risk investments in startups.
- Manual Claims: Reliefs must be claimed via Self Assessment. Keep all certificates (EIS3, SEIS3, VCT docs).
- Tax Rule Changes: Future governments may alter reliefs or qualifying criteria.
👤 Who Are These Schemes For?
| Suitable If… | Less Suitable If… |
|---|---|
| You’re a high earner with a large tax bill | You need short-term liquidity |
| You’ve maxed pensions and ISAs | You prefer stable, low-risk investments |
| You’re interested in startup exposure | You’re uncomfortable with illiquid holdings |
| You want to reduce IHT exposure (EIS/SEIS) | You don’t want to manage tax paperwork manually |
🌱 When to Consider SEIS
While SEIS has a lower annual limit (£200,000), its 50% income tax relief makes it one of the most generous tax reliefs available. SEIS targets very early-stage startups, making it the riskiest of the three but also potentially the most tax-efficient, particularly when paired with Loss Relief.
SEIS may be worth considering if:
- You have remaining tax capacity after pensions and ISAs
- You want to back high-risk startups with limited capital
- You’re combining EIS + SEIS in the same tax year for layered relief
🧠 Summary Table
| Scheme | Income Tax Relief | CGT Relief | CGT Deferral | Loss Relief | IHT Relief | Risk |
|---|---|---|---|---|---|---|
| EIS | 30% | Yes (after 3 yrs) | Yes | Yes | Yes (after 2 yrs) | High |
| VCT | 30% | Yes (after 5 yrs) | No | No | No | High |
| SEIS | 50% | Yes (after 3 yrs) | 50% exemption | Yes | Yes (after 2 yrs) | Very High |
Curated by the r/HENRYUK mod team. This is version 1.0 of the community wiki.