SEIS and EIS Explained: UK Tax Benefits for Startup Investors

If you're raising money for a UK startup, understanding SEIS and EIS isn't optional—it's essential. These schemes offer significant tax benefits to investors, making your startup more attractive to angels and early-stage funds.

Here's everything founders need to know.

What Are SEIS and EIS?

SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are UK government programs designed to encourage investment in early-stage companies by offering tax relief to investors.

For investors, these schemes dramatically reduce the risk of startup investment. For founders, they're a powerful incentive that can help close rounds faster.

SEIS: Seed Enterprise Investment Scheme

SEIS is designed for the earliest stage companies.

Tax Benefits for Investors

Benefit	Detail
Income Tax Relief	50% of investment amount
Capital Gains Tax Exemption	No CGT on SEIS gains if held 3+ years
Loss Relief	Offset losses against income tax
CGT Reinvestment Relief	Defer CGT from other gains

Example: An investor puts £100,000 into your SEIS-qualifying startup.

• Immediate tax relief: £50,000 (50% of investment)
• Net cost to investor: £50,000
• If the startup fails completely, loss relief further reduces their exposure

SEIS Limits and Requirements

Investment limits:

• Maximum £250,000 lifetime investment per company
• Maximum £200,000 per investor per tax year

Company requirements:

• Less than £350,000 in gross assets before investment
• Fewer than 25 employees
• Less than 3 years old
• Carrying on a qualifying trade
• No previous EIS/VCT investment

Investor requirements:

• Cannot own more than 30% of the company
• Cannot be an employee (directors are ok)
• Must hold shares for minimum 3 years for full relief

EIS: Enterprise Investment Scheme

EIS is for slightly more mature early-stage companies.

Tax Benefits for Investors

Benefit	Detail
Income Tax Relief	30% of investment amount
Capital Gains Tax Exemption	No CGT on EIS gains if held 3+ years
Loss Relief	Offset losses against income tax
CGT Deferral Relief	Defer CGT from other gains
Inheritance Tax Relief	Shares exempt from IHT after 2 years

Example: An investor puts £500,000 into your EIS-qualifying startup.

• Immediate tax relief: £150,000 (30% of investment)
• Net cost to investor: £350,000
• Plus CGT deferral on other gains, IHT benefits, loss relief if things go wrong

EIS Limits and Requirements

Investment limits:

• Maximum £5 million per year per company (£12M lifetime)
• Maximum £1 million per investor per tax year (£2M for knowledge-intensive companies)

Company requirements:

• Fewer than £15 million in gross assets (£16M after investment)
• Fewer than 250 employees
• Less than 7 years old (10 for knowledge-intensive companies)
• Carrying on a qualifying trade
• Permanent establishment in the UK

Investor requirements:

• Cannot own more than 30% of the company
• Cannot be an employee (directors are ok)
• Must hold shares for minimum 3 years

SEIS vs EIS: Quick Comparison

Factor	SEIS	EIS
Income Tax Relief	50%	30%
Company Age	< 3 years	< 7 years
Company Size	< 25 employees	< 250 employees
Assets Limit	< £350k	< £15M
Max Raise/Year	£250k	£5M
Investor Max/Year	£200k	£1M

What Disqualifies a Company?

Both schemes exclude certain activities. Your startup won't qualify if it primarily involves:

• Property development
• Financial services (with exceptions)
• Legal or accountancy services
• Farming
• Hotels, nursing homes
• Coal or steel production
• Shipbuilding
• Energy generation (some exceptions for renewables)

Most tech startups—SaaS, marketplaces, fintech, healthtech—are eligible.

How to Become SEIS/EIS Qualifying

Step 1: Advance Assurance

Before raising, apply to HMRC for "advance assurance." This confirms your company qualifies for the scheme and gives investors confidence.

You'll need:

• Business plan
• Financial projections
• Company structure details
• Description of qualifying trade

Processing time: 4-6 weeks typically, though HMRC aims for 15 working days.

Step 2: Issue Shares and Claim Relief

After investment:

1. Issue shares to investors
2. Submit compliance statement (SEIS1/EIS1) to HMRC
3. HMRC issues compliance certificates (SEIS3/EIS3)
4. Investors use certificates to claim tax relief

Step 3: Maintain Compliance

For the 3-year minimum holding period, ensure:

• The company continues qualifying trade
• You don't repay investors' capital
• Investors don't become employees
• Company structure doesn't breach rules

Tips for Founders

1. Get Advance Assurance Early

Apply before you start fundraising. Having HMRC confirmation makes investor conversations much easier.

2. Structure Your Round Properly

If raising more than £250k, structure as SEIS for the first £250k, then EIS for the rest. This maximizes investor tax benefits.

3. Work with Experienced Advisors

SEIS/EIS has nuances and traps. Use a lawyer and accountant who specialize in startup fundraising to ensure compliance.

4. Document Everything

Keep clear records of:

• Shareholder agreements
• Board minutes
• Use of funds
• Trade activities

This protects you if HMRC queries eligibility later.

5. Communicate with Investors

Ensure investors understand:

• The holding period requirement (3 years minimum)
• Restrictions on their involvement
• Timeline for receiving tax certificates

Common Mistakes to Avoid

1. Raising Before Advance Assurance If you raise without advance assurance and HMRC later determines you don't qualify, investors lose their tax relief. Some may have legal recourse against you.

2. Exceeding Limits Raising more than £250k in SEIS or £5M in EIS per year breaches limits. Structure your round carefully.

3. Connected Persons Investors who are "connected" to the company (e.g., substantial shareholders, employees) may not qualify. Understand the rules.

4. Non-Qualifying Trade If your business model involves excluded activities, you won't qualify. Get professional advice on borderline cases.

5. Post-Investment Changes Changing your business model, structure, or activities after raising can breach compliance and claw back tax relief.

The Bottom Line for Founders

SEIS and EIS are powerful tools for UK startups:

• SEIS offers 50% tax relief for investments up to £250k
• EIS offers 30% tax relief for investments up to £5M per year
• Combined with loss relief, investors' downside is significantly protected

This makes UK startups more attractive than equivalents in many other countries. Use it.

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