The United Kingdom’s Enterprise Investment Scheme (EIS) is a forward-thinking government program that champions the growth of young, high-potential companies. EIS incentivises investment in these budding ventures by providing tax benefits to individual backers. 

In turn, these companies, which might otherwise face funding challenges, gain the financial support they need. For investors, the rewards aren’t just financial; there’s also the satisfaction of bolstering innovation.

Keep reading while we deep dive into what the EIS is, and you can discover if this is a scheme you wish to get involved in yourself.

What is the EIS?

The Enterprise Investment Scheme (EIS) is a government-backed initiative in the United Kingdom aimed at spurring investment in small and early-stage companies. The EIS offers tax incentives to individual investors, including up to 30% income tax relief on their investments. It also provides exemptions from Capital Gains Tax (CGT), loss relief, and potential exemptions from Inheritance Tax (IHT). 

These incentives are strategically designed to attract private funding to high-risk businesses, fostering economic growth and innovation. To qualify for EIS scheme benefits, both investors and companies must meet specific criteria, making EIS a valuable tool for financing startups and nurturing entrepreneurship in the UK.

Who can participate in the EIS?

Participation in the Enterprise Investment Scheme (EIS) hinges on specific EIS eligibility criteria for investors and companies seeking investment. Here’s a simplified breakdown:


  • Individuals: EIS primarily targets individual investors, not corporations or institutions.
  • UK taxpayers: Investors must pay UK taxes to access EIS tax incentives like the income tax relief scheme and capital gains tax exemption.
  • Non-connected status: Generally, investors should not have significant ties to the company they’re investing in, such as ownership stakes or employment.
  • Investment limits: Each tax year has minimum and maximum investment limits to qualify for EIS benefits, subject to regulation changes.

Companies Seeking Investment

  • UK-based traders: Eligible venture capital trusts or small companies must be UK-based and actively involved in a qualifying trade, with certain activities, like property development, excluded.
  • Asset threshold: The company’s gross assets must not exceed a set limit, often £15 million before and £16 million after the investment.
  • Employee count: There are caps on the number of EIS qualification employees, typically 250 full-time equivalent employees.
  • Funds usage: EIS-raised funds must boost company growth, not engage in non-qualifying activities.
  • Risk-to-capital condition: Companies must genuinely represent high-risk enterprises.
  • Not listed: Companies on certain stock exchanges might not be eligible.

How does the EIS work?

The Enterprise Investment Scheme (EIS) fosters investment in small UK businesses by offering tax incentives to individual investors. Investors receive a 30% income tax relief when they invest in qualifying startups or early-stage companies. This capital injection fuels the company’s growth and development. Investors can also enjoy tax exemptions and loss relief from Capital Gains Tax (CGT). Eligible companies must meet specific criteria, including UK-based trading entities with risk-to-capital profiles. EIS serves as a catalyst for entrepreneurship and innovation by connecting investors with high-potential, high-risk ventures, all while providing tax benefits to mitigate investment risks.

The EIS process: A step-by-step guide

  1. Check eligibility: First, verify that your UK-based company qualifies. It should be unlisted and meet specific criteria regarding its size, trading activities, and assets.
  2. Share issuance: Ensure that you’re issuing new ordinary shares with no preferential rights. They must be fully paid in cash.
  3. Utilise funds: Within two years, deploy the EIS funds for approved business activities.
  4. HMRC compliance: After using the funds (or 70% for knowledge-intensive firms), submit form EIS1 to HMRC, confirming adherence to EIS rules.
  5. Get authorisation: If everything’s in order, HMRC will provide the EIS2 form. This allows the company to offer EIS3 certificates to its investors.
  6. EIS tax relief for investors: Upon receiving their EIS3 certificates, investors can claim their tax benefits.
  7. Three-year commitment: To maintain these tax benefits, investors should retain their EIS shares for at least three years.

Advantages of the EIS

For investors:

  • Tax benefits: Investors enjoy a 30% income tax reduction on their EIS investments, lowering their overall tax obligations.
  • CGT exemption: Gains from the sale of EIS-qualified shares are typically exempt from Capital Gains Tax (CGT), potentially resulting in substantial tax savings during exit.
  • Loss offset: Should the EIS investment incur losses, investors can offset them against their income or other gains, further reducing their tax liabilities.

For businesses:

  • Access to funding: EIS provides a funding source for small and high-risk businesses, addressing their financing challenges.
  • Investor appeal: The attractive tax incentives of EIS make your business more appealing to potential investors.
  • Risk mitigation: EIS investors typically accept higher risk levels, benefiting businesses in their early stages.

How the EIS compares to other investment schemes

The Enterprise Investment Scheme (EIS) incentivises investments in budding, high-risk UK enterprises by providing notable tax advantages. In contrast, the Seed Enterprise Investment Scheme (SEIS) is tailored for smaller start-ups, offering even heftier tax benefits. The Venture Capital Trust (VCT) allows investments in a diverse trust rather than a direct company stake, providing a unique risk distribution and dividend tax relief. While all these mechanisms aim to boost investments in the UK’s emerging businesses, they diverge in terms of target company size, risk distribution, and distinct tax perks.

Key takeaways

The Enterprise Investment Scheme (EIS) stands as a testament to the UK’s commitment to fostering innovation and growth within its business ecosystem. By offering compelling tax incentives, EIS encourages private investments in higher-risk, early-stage companies, bridging the funding gap these businesses often face.

If you want to know more about EIS or require further consultation on the scheme, don’t hesitate to get in touch with one of the experts at Braant.

Frequently Asked Questions (FAQs)

What are the tax benefits of EIS?

EIS offers a range of benefits, including income tax relief, capital gains tax deferral, and generous tax breaks.

How long should I hold EIS shares?

To retain the EIS tax reliefs, investors need to hold EIS shares for a minimum of three years.

Can any company qualify for EIS?

No, only specific companies meeting criteria like being UK-based, unlisted, and within set financial thresholds can qualify.

How much can I invest under EIS?

An individual can invest up to £1 million in one tax year under EIS or up to £2 million if investing in knowledge-intensive companies.

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