SEIS and EIS explained: tax-efficient startup investment

What SEIS and EIS actually do

Both schemes work by giving individual investors tax reliefs when they subscribe for new shares in a qualifying trading company. The company itself does not receive the relief; it receives the investment. The reliefs make the investor's downside smaller and their potential net return larger, which is why the schemes are so widely used in UK early-stage fundraising.

SEIS is the more generous of the two because it supports the riskiest, earliest investments. According to gov.uk, an investor can claim income tax relief at 50% of the amount subscribed. EIS supports later and larger rounds and offers income tax relief at 30%. Both schemes also carry capital gains tax advantages, which we cover further down.

The reliefs are not automatic. The company has to qualify, stay qualifying for at least three years, and complete HMRC paperwork so that investors can claim. Get any of that wrong and HMRC can withhold or withdraw the reliefs from the investors, which is why the process matters as much as the headline percentages.

It also helps to see the schemes as a sequence rather than a choice. A typical path is to take a small SEIS round at the point the company is little more than an idea, then move to EIS once the trade is established and the raise is larger. Because the SEIS company ceiling is only £250,000 and the SEIS age limit is three years, most companies outgrow SEIS quickly, so EIS is where the larger investment usually comes from. Planning the two together, rather than treating them in isolation, tends to give investors the cleanest picture of what relief they will get.

The tax reliefs for investors

The headline benefit is income tax relief. Under SEIS, gov.uk states that an investor can claim relief at a rate of 50% on the amount invested, up to a maximum investment of £200,000 in a tax year. Under EIS, the rate is 30%, and the maximum an individual can claim relief on is £1 million in a tax year, rising to £2 million if at least £1 million of that is invested in one or more knowledge-intensive companies.

There are also capital gains tax reliefs. If an investor holds their SEIS or EIS shares for at least three years and received income tax relief on them, any gain when they eventually sell the shares is exempt from capital gains tax. This is known as disposal relief. Because early-stage exits can be large multiples of the amount invested, this exemption is often worth more than the upfront income tax relief.

SEIS adds a further capital gains tax advantage called reinvestment relief. HMRC guidance says an investor can treat a maximum of 50% of a gain as exempt from capital gains tax where they reinvest that gain into SEIS shares, up to a maximum exempt amount of £100,000. EIS offers deferral relief instead, which lets an investor defer a gain from another asset by reinvesting it into EIS shares. Both schemes also offer loss relief, so if the shares fall in value the loss, less any income tax relief already given, can be set against income.

SEIS company eligibility

SEIS is aimed at brand new companies, so the qualifying conditions are strict. Per gov.uk, a company can receive a maximum of £250,000 in total through SEIS. When the shares are issued, the company must not have gross assets worth more than £350,000 and must have fewer than 25 full-time equivalent employees.

There is also an age test. The company's qualifying trade must not have been carried out for more than three years by the company or any predecessor. The trade must be a new qualifying trade, or the company must be doing research and development that is expected to lead to a qualifying trade, such as a project to make an advance in science or technology.

The £250,000 SEIS ceiling is a lifetime figure for the company under the scheme, not a per-round figure. Once a company has used up its SEIS allowance, or grown beyond the SEIS limits, its later rounds will generally need to use EIS instead. Many companies plan for this from the outset, taking SEIS money early and reserving EIS for the next stage.

EIS company eligibility

EIS is for slightly larger, but still higher-risk, trading companies. Following the changes that took effect on 6 April 2026, gov.uk states that most companies can raise up to £10 million in total in any 12-month period and up to £24 million from these sources across the company's lifetime. A company must have fewer than 250 full-time equivalent employees when the shares are issued.

The gross assets test is larger than for SEIS. Per gov.uk, a company must not have gross assets worth more than £30 million before the shares are issued and not more than £35 million immediately afterwards. The age test is that the investment must be received within 7 years of the company's first commercial sale.

Two special categories have higher limits. A knowledge-intensive company can raise up to £20 million in any 12-month period and up to £40 million over its lifetime, may have up to 500 full-time equivalent employees, and has a 10-year window from either its first commercial sale or the point its annual turnover went over £200,000. Separately, gov.uk defines a specified company by reference to a registered office in Northern Ireland and certain trades; specified companies have lower limits of £5 million in a 12-month period and £12 million over their lifetime, with a gross assets test of £15 million before and £16 million immediately after the share issue.

Advance assurance and issuing shares

Investors want confidence that the reliefs will be available before they commit money. Advance assurance is how you give them that. Gov.uk describes it as asking HMRC whether your share issue is likely to qualify before you go ahead. If HMRC gives advance assurance, you can share the outcome with prospective investors as evidence that the company meets the conditions.

Advance assurance is not the end of the process. It is an indication, not a guarantee, and you still have to complete the formal compliance steps after the shares are issued. If your plans change materially after advance assurance is granted, you should provide HMRC with copies of any documents that have changed.

Once you have issued the shares and either carried out the qualifying business activity for at least four months or, for SEIS, spent at least 70% of the money raised, you submit a compliance statement to HMRC. For SEIS this is form SEIS1 and for EIS it is form EIS1. HMRC then sends a letter of authorisation, a unique reference number and a compliance certificate (form SEIS3 or EIS3) for you to pass to your investors, which is what they use to claim their reliefs.

Keeping the reliefs valid

Qualifying is only the start. Gov.uk is clear that tax reliefs will be withheld or withdrawn from investors if the company does not follow the scheme rules for at least three years after the investment is made. That three-year window aligns with the minimum period an investor must hold their shares to keep the reliefs, so both sides are tied to the same clock.

Common ways to lose the reliefs include the company ceasing to carry on a qualifying trade, becoming a subsidiary of another company, or the investor selling their shares early. Because the consequences fall on the investor rather than the company, founders have a strong reputational reason to stay compliant even though the tax cost is not theirs.

Good record-keeping is the practical answer. Keep the advance assurance correspondence, the share issue documents, the compliance statements and the certificate reference numbers together, and track the three-year anniversaries. Getting the company structure right at formation, with clean ordinary shares and a qualifying trade, avoids most of the problems that arise later. Our company formation service is built to set companies up on that footing from day one.

Conclusion

SEIS and EIS are among the most valuable tools available to UK founders raising equity. SEIS gives investors 50% income tax relief on up to £200,000 a year and lets a company raise up to £250,000 in total, while EIS gives 30% relief and supports much larger rounds. Layered with the capital gains tax exemptions on eventual disposal, the schemes materially improve the risk-adjusted return an investor can expect, which is exactly why they make a raise easier.

The reliefs come with real conditions on the company's size, age and trade, and with a compliance process that has to be followed precisely for at least three years. Plan the schemes into your fundraising early, secure advance assurance before you approach investors, and keep the paperwork tidy. If you would like help structuring your company or raise, get in touch with our team and we will point you in the right direction.

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