SEIS and EIS Explained: The Most Powerful Tax Reliefs Most People Aren’t Using
If you're paying £10,000 or more in income tax each year, you should know about SEIS and EIS.
These two government-backed investment schemes offer some of the most generous tax reliefs available in the UK — rewarding you for backing British startups.
In this article, we’ll explain how they work, who they’re for, and why you might want to take a closer look.
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What Are SEIS and EIS?
SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are government initiatives designed to encourage investment into early-stage UK companies.
When you invest in a qualifying company through one of these schemes, you can claim substantial tax reliefs, both up front and if the company fails. If the company succeeds, the profits are tax-free.
They are particularly useful for:
- High earners with large income tax bills
- Individuals who have recently sold an asset and want to defer Capital Gains Tax
- Investors looking for exposure to startup growth with limited downside
- Founders raising funds who want to make their offer more attractive
Let’s break them down.
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SEIS: For Very Early Stage Startups
The Seed Enterprise Investment Scheme applies to companies in their very earliest stages — typically those that have raised less than £350,000.
What do you get?
- 50% income tax relief on up to £200,000 per tax year
- Capital Gains Tax (CGT) exemption on any gain after holding the shares for 3 years
- Loss relief if the company fails (at your marginal tax rate)
- CGT reinvestment relief on 50% of gains if reinvested in SEIS shares
- Option to carry back the relief to the previous tax year
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Real-world example:
You invest £10,000 in an SEIS-qualifying startup.
- You claim £5,000 off your income tax bill.
- If the startup fails and you sell the shares for nothing, you can claim loss relief on the remaining £5,000.
- If you're a 45% taxpayer, that’s another £2,250 off your tax bill.
- Your total loss exposure is only £2,750.
If the company succeeds, any future sale is 100% tax-free.
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EIS: For Later Stage Startups
The Enterprise Investment Scheme is designed for companies that are still growing but are beyond the seed stage.
What do you get?
- 30% income tax relief on up to £1 million per year (or £2 million for knowledge-intensive businesses)
- No Capital Gains Tax after 3 years
- Loss relief at your marginal rate
- CGT deferral relief when reinvesting previous gains
- Option to carry back the relief to the prior tax year
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Real-world example:
You invest £10,000 in an EIS-qualifying company.
- You claim £3,000 off your income tax bill.
- If the company fails, you can claim loss relief on the remaining £7,000.
- At 45% tax, that’s another £3,150 off your tax bill.
- Your total loss exposure is just £3,850.
Again, if the company succeeds, your gains are 100% tax-free.
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Key Differences Between SEIS and EIS
| Feature | SEIS | EIS |
|----------------------------------|--------------------------------|--------------------------------|
| Income Tax Relief | 50% | 30% |
| Annual Investment Limit | £200,000 | £1 million (£2m if knowledge-intensive) |
| CGT Exemption | Yes (after 3 years) | Yes (after 3 years) |
| Loss Relief | Yes, at individual’s tax rate | Yes, at individual’s tax rate |
| CGT Deferral | On 50% of gain | On full gain |
| Company Stage | Very early (max £350k raised) | Growth stage |
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How Does Loss Relief Work?
Loss relief allows you to offset the amount of your investment (minus the income tax relief) against your income or capital gains — if the company fails.
It’s calculated at your marginal rate of income tax:
- Basic rate taxpayer: 20%
- Higher rate taxpayer: 40%
- Additional rate taxpayer: 45%
The relief applies whether the company goes bust, is dissolved, or is sold for less than you paid.
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Who Should Consider SEIS or EIS?
These schemes are a great fit if:
- You’re earning £100,000+ and want to reduce your tax bill
- You want to support innovation and startups in the UK
- You’re looking for high-risk, high-reward investments with a safety net
- You want to defer or eliminate capital gains on a recent disposal
They’re not for everyone. Startups are inherently risky and your capital is at risk. You must be prepared to hold shares for at least 3 years to access most of the tax benefits.
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The Carry Back Advantage
Both SEIS and EIS allow you to apply your tax relief to the previous tax year if you have unused allowances.
This is especially helpful if:
- You’ve already filed your return and paid a large tax bill
- You want to trigger a refund from HMRC
You can make the investment now and still benefit from the tax you already paid.
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Final Word
SEIS and EIS are two of the most powerful tools in UK tax planning.
They're not loopholes. They're government-backed, HMRC-approved ways to reduce your tax bill, invest in UK innovation, and potentially generate tax-free returns.
But the rules are detailed. The paperwork matters. And the timing is important.
If you’re a high earner or serious investor, SEIS and EIS should be on your radar.
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Need help with SEIS or EIS?
At Smith & Johnson, we help individuals and business owners take advantage of the full suite of reliefs available to them without the confusion.
Whether you're investing or raising, we can guide you through every step.
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This article is for informational purposes only and does not constitute tax, legal, or financial advice. Always seek personalised advice before making investment decisions.