Tax relief for individuals includes government-backed schemes that reduce your tax bill when you invest in certain businesses. These reliefs like the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs) encourage private investors to support small, high-risk, or growing companies. In return, you can claim income tax relief, capital gains tax exemptions, or deferrals.
Before you invest, it’s important to understand how each scheme works, how much you can invest each year, and the conditions you need to meet to claim the tax reliefs. Knowing the rules helps you make the most of the available allowances, manage your tax liability, and back businesses that could grow in value over time.
The Enterprise Investment Scheme (EIS) provides tax relief for individuals prepared to invest in new and growing companies. Investors can obtain generous income tax and capital gains tax (CGT) breaks for their investment and companies can use the relief to attract additional investment to develop their business. Individuals are entitled to relief on investments in certain unquoted trading companies through EIS. A junior version of EIS the SEIS is also available.
Maximum investment per annum: £1,000,000
Additional investment limit where investing in knowledge-intensive companies: £2,000,000
Income tax relief: 30%
CGT treatment on disposal if held for 3 years: Exempt
Capital gains from the disposal of other assets may be deferred by making an EIS investment.
The Seed Enterprise Investment Scheme (SEIS) provides tax relief for individuals prepared to invest in new and growing companies. Investors can obtain generous income tax and capital gains tax (CGT) breaks for their investment and companies can use the relief to attract additional investment to develop their business. SEIS is a junior version of EIS.
Maximum investment per annum: £200,000 1
Income tax relief: 50%
CGT treatment on disposal if held for 3 years: Exempt
An individual who makes a capital gain on another asset and uses the amount of the gain to make a SEIS investment will not pay tax on 50% of the gain (subject to certain conditions).
Capital gains from the disposal of other assets may be exempt up to £100,000* per annum by making an SEIS investment.
1 Limits subject to Parliamentary approval.
Social Investment Relief (SIR) was designed to encourage private individuals to invest in social enterprises including charities.
SIR closed to any new investments from 6 April 2023.
Venture Capital Trusts (VCTs) are designed to encourage private individuals to invest in smaller high-risk unquoted trading companies. VCTs operate by indirect investment through a mediated fund. In effect they are very like the investment trusts that are obtainable on the stock exchange, albeit in a high-risk environment. Individuals are entitled to relief on investments in VCTs.
Maximum investment per annum: £200,000
Income tax relief: 30%
Dividend income: Exempt
Capital gains treatment on disposal: Exempt
(All reliefs are subject to detailed conditions being met.)
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Most UK taxpayers can qualify for these investment tax reliefs if they meet the scheme rules and invest in approved companies or funds.
For EIS and SEIS:
You must invest in qualifying unquoted trading companies. You can’t be connected to the company for example, you generally can’t own more than 30% of the shares or be an employee (though some directors can still qualify).
For VCTs:
Anyone can invest in Venture Capital Trusts through the stock market, but you must hold your shares for a minimum period (usually five years) to keep the tax reliefs.
Other Requirements:
You must be a UK taxpayer to claim the income tax relief. You also need to follow HMRC’s rules on maximum annual investment limits and keep your shares for the minimum holding period to benefit from the tax-free capital gains or deferral.
Claiming tax relief through EIS, SEIS, or VCTs is straightforward if you follow the correct steps and keep good records.
Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS):
When you invest in an approved company, they’ll give you an EIS or SEIS certificate (form EIS3 or SEIS3). You use this form to claim income tax relief through your Self-Assessment tax return. If you want to defer capital gains, you’ll also include the details when you submit your return.
Venture Capital Trusts (VCTs):
When you invest in VCT shares, you’ll get a VCT certificate. You claim the income tax relief by including the details in your Self-Assessment tax return. Dividend income from VCTs is usually tax-free and doesn’t need to be reported if within the limits.
Keep Evidence:
Always keep your investment certificates and HMRC paperwork safe. If you sell or dispose of your shares too early, you may lose the relief and owe extra tax.
Timing:
Make sure you claim within the time limits you normally have up to five years from the end of the tax year in which you made the investment to claim income tax relief.
What is tax relief for individuals?
It’s a government incentive that lets individuals reduce their tax bill when they invest in certain new, growing, or high-risk businesses through schemes like EIS, SEIS, or VCTs.
Who can claim EIS or SEIS tax relief?
UK taxpayers who invest in qualifying unquoted trading companies and meet the scheme’s conditions like not being too closely connected to the company can claim.
How much income tax relief can I get?
With EIS, you can claim up to 30% of your investment as income tax relief. With SEIS, it’s up to 50%. VCT investments offer 30% relief.
What is the maximum I can invest?
You can invest up to £1 million per tax year through EIS (or £2 million for knowledge-intensive companies). For SEIS, the limit is £200,000. For VCTs, it’s £200,000.
Are capital gains tax-free under these schemes?
Yes if you keep EIS or SEIS shares for at least 3 years, any gain is usually exempt from CGT. VCT shares are CGT-free too if you meet the rules.
Can I defer other capital gains?
Yes you can defer capital gains from other assets by reinvesting them through EIS. SEIS can also halve some capital gains tax if conditions are met.
How do I claim tax relief for individuals?
Use your EIS, SEIS, or VCT certificate to claim relief through your Self Assessment tax return. Keep your forms and evidence safe in case HMRC checks.
What happens if I sell my shares too soon?
If you sell or dispose of your shares before the minimum holding period (usually 3 years), you may have to repay the tax relief and pay capital gains tax.
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