The Enterprise Investment Scheme (EIS) is a government program that encourages private investors to put money into small, high-growth UK companies. In return, investors receive tax breaks, both upfront and after the investment. It’s the UK’s way of rewarding people who take the risk of funding innovation.
In the tax year 2023 to 24, the total amount invested under the Enterprise Investment Scheme (EIS) was ~£1.6 billion.
The Key Benefits (in simple terms)
When you invest in an EIS-eligible startup:
- 30% Income Tax Relief
You get 30% of your investment back as a reduction on your income tax bill.
Example: If you invest £100,000, you can reduce your income tax by £30,000. - No Capital Gains Tax (CGT) on profits
If you sell your shares after 3 years and make a profit, you pay no tax on the gain. - Loss Relief if it fails
If the startup fails, you can claim a loss against your income tax or capital gains tax, meaning you recover some of what you lost. - No Inheritance Tax
After 2 years, your EIS shares are usually free from inheritance tax.
Let’s look at three simple examples
Let’s imagine you invest £100,000 into an EIS-eligible startup.
Example 1: The startup fails completely
- You lose your £100,000 investment.
- You get 30% income tax relief (£30,000).
- You can claim loss relief on the remaining £70,000 (the amount you truly lost).
- If you’re a 45% taxpayer, that’s another £31,500 claimed as loss relief (45% of £70,000).
- Your real loss is £100,000 – £30,000 – £31,500 = £38,500.
→ So even though the company failed, you only lost 38.5% of your investment.
Example 2: The startup sells for £100k and you break even
- You get your original £100,000 back after 3 years.
- You keep your 30% tax relief (£30,000).
- There’s no capital gains tax to pay.
→ Your total return is £30,000 profit from the tax relief — a 30% gain, even with no company growth... and you don't pay capital gains tax on it.
Example 3: The startup succeeds
- After 4 years, your £100,000 investment grows to £500,000.
- You sell your shares and pay no Capital Gains Tax.
- You already received £30,000 back as income tax relief.
- Your total profit: £400,000 gain + £30,000 relief = £430,000.
→ That’s a 430% net return, completely tax-free.
How to Use EIS as an Investor
- Check the company’s EIS status
- Invest directly or through a fund (Like Blissgrowth) or platform that handles EIS paperwork.
- Keep the shares for at least 3 years to retain the benefits.
- Claim your tax relief using the EIS3 certificate the company provides. (Funds like Blissgrowth can help with this)
Why It Matters
EIS helps investors take smart risks while supporting innovation. It provides downside protection if things go wrong and enhances returns if things go right. It’s one of the most generous tax relief schemes in the world and a key part of how the UK funds the next generation of startups.
