What is the Difference Between SEIS and EIS?
If you are looking at UK startup investing, you have almost certainly stumbled across two sets of capital letters: SEIS and EIS. The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are government-backed initiatives designed to encourage investment into early-stage businesses. They offer generous tax breaks to compensate for the higher risks of backing young UK companies. However, picking the right scheme depends entirely on company age, funding targets, and your personal tax position. If you want to Explore SEIS and EIS investments, understanding how these limits stack up is your very first step.
In short, SEIS focuses on early seed-stage startups, giving individual investors a massive 50% income tax relief on investments up to £200,000 per tax year. EIS targets slightly more established businesses scaling up, offering a 30% income tax relief on up to £1,000,000 per year (or £2,000,000 if investing in Knowledge Intensive Companies). Both schemes protect your downside with loss relief, allow tax-free capital growth after three years, and eliminate inheritance tax obligations. Platforms offering Tax saving investments like the Oriel Investment Marketplace make it simple to find vetted companies that meet these strict HMRC rules without paying hefty deal fees.
Quick Comparison: SEIS vs EIS at a Glance
When comparing SEIS vs EIS, the rules differ significantly across maximum investment caps, company age limits, gross asset thresholds, and staff headcount. Here is how the two schemes compare head-to-head:
| Feature | Seed Enterprise Investment Scheme (SEIS) | Enterprise Investment Scheme (EIS) |
|---|---|---|
| Target Business Stage | Early seed / pre-revenue / early trading | Early growth / scaling up |
| Income Tax Relief | 50% | 30% |
| Max Individual Investment (per year) | £200,000 | £1,000,000 (£2,000,000 for KICs) |
| Max Company Lifetime Raise | £250,000 | £12,000,000 (£20,000,000 for KICs) |
| Company Age Limit | Under 3 years of trading | Under 7 years of trading (10 years for KICs) |
| Maximum Gross Assets | £350,000 | £15,000,000 |
| Maximum Full-Time Staff | Up to 25 employees | Up to 250 employees (500 for KICs) |
| Minimum Share Holding Period | 3 years | 3 years |
| Capital Gains Exemption | Yes (after 3 years) | Yes (after 3 years) |
Note: Knowledge Intensive Companies (KICs) focus heavily on R&D and intellectual property, allowing them expanded thresholds under EIS rules.
How Does Income Tax Relief Work for SEIS and EIS?
Income tax relief is the headline benefit for angel investors looking at UK startups. It lets you write off a large chunk of your initial investment directly against your UK income tax liability for the current or previous tax year (via carry-back provisions).
SEIS Income Tax Relief (50%)
Under SEIS, you can claim 50% of your investment amount against your income tax bill. If you invest £10,000 into a qualifying seed-stage company, your income tax liability for that year is reduced by £5,000. Because the individual annual limit is capped at £200,000, you can claim a maximum income tax reduction of £100,000 in a single tax year.
EIS Income Tax Relief (30%)
With EIS, the income tax relief rate sits at 30%. Investing £10,000 saves you £3,000 on your tax bill. However, the investment volume allowed under EIS is far higher. You can put up to £1,000,000 into standard EIS-qualifying companies each year (saving £300,000 in tax) or up to £2,000,000 if at least £1,000,000 goes into Knowledge Intensive Companies.
Founders preparing to raise under these terms can Showcase your startup directly to investors looking for these precise tax breaks.
What are the Capital Gains Tax Benefits?
Beyond basic income tax relief, both SEIS and EIS offer substantial Capital Gains Tax (CGT) relief options. These fall into two main categories: CGT exemption on growth, and CGT deferral or reinvestment relief.
Tax-Free Capital Gains (Disposal Relief)
If you hold your SEIS or EIS shares for at least three years, any profit you make when selling those shares is 100% free from Capital Gains Tax. For example, if your £20,000 investment grows to £200,000, you pay zero CGT on the £180,000 profit. To qualify, you must have claimed income tax relief on those shares and not had it withdrawn by HMRC.
SEIS CGT Reinvestment Relief
SEIS features a unique benefit called CGT Reinvestment Relief. If you sell an asset (like property, stocks, or a secondary business) and make a taxable capital gain, you can reinvest that gain into SEIS shares. By doing so, you can reduce the original capital gain tax liability by 50% for that tax year. This comes on top of the 50% income tax relief.
EIS CGT Deferral Relief
EIS does not offer an outright 50% discount on existing gains, but it does allow CGT Deferral Relief. If you realize a capital gain from any asset sale, you can defer paying CGT by reinvesting the gain into EIS-qualifying shares. The tax liability is effectively frozen until you dispose of the EIS shares, at which point the original gain crystallises (unless rolled over again).
How Does Loss Relief Protect Your Investment?
Investing in early-stage startups is inherently high risk. Companies fail. Fortunately, both SEIS and EIS include loss relief mechanisms to cushion the financial impact if a business goes under or sells at a total loss.
Loss relief allows you to offset your net loss against your income tax liability (at your marginal rate) rather than just against capital gains.
Calculating Effective Risk Under SEIS
Imagine an investor in the 45% (additional rate) income tax bracket who puts £10,000 into an SEIS-qualifying startup:
1. Initial Tax Relief (50%): You save £5,000 instantly on your income tax bill.
2. At Risk Amount: Your net exposure is £5,000.
3. Company Fails: You suffer a total loss of the remaining £5,000 net capital.
4. Loss Relief (45% of net loss): You claim 45% of £5,000, which reduces your tax bill by an extra £2,250.
5. Total Out-of-Pocket Loss: Your actual loss on a £10,000 failed investment is just £2,750 (27.5% of your original cash outlay).
Calculating Effective Risk Under EIS
Using the same 45% tax bracket for an EIS investment of £10,000:
1. Initial Tax Relief (30%): You save £3,000 on income tax.
2. At Risk Amount: Your net exposure is £7,000.
3. Company Fails: You claim loss relief at 45% on the £7,000 net loss, saving an extra £3,150 on your tax bill.
4. Total Out-of-Pocket Loss: Your actual loss is £3,850 (38.5% of your outlay).
This downside protection makes early-stage backing far more attractive than standard un-incentivised stock market investing. You can use our Educational Tools to model these scenarios before allocating capital.
What Are the Rules and Restrictions for Investors?
HMRC sets strict boundaries on who can claim SEIS and EIS reliefs. You cannot simply set up a company, invest in yourself, and claim half your money back from the taxman.
Maximum Shareholding Rule
To qualify for tax reliefs, an investor cannot be “connected” to the company. In practice, this means you cannot hold more than a 30% stake in the company. This 30% limit includes share capital, voting rights, or rights to assets in a winding-up scenario. The 30% calculation also includes shares held by your “associates” (spouses, civil partners, parents, children, and business partners, though notably siblings are excluded).
Employment and Directorship Restrictions
- SEIS: Investors can be employees or directors of the business and still claim 50% income tax relief.
- EIS: Investors cannot be employees of the company. However, paid directorships are permitted under specific conditions, such as becoming a paid director after making an EIS investment (Business Angel rules) or taking unremunerated directorships.
Minimum Holding Period
Shares must be held for at least three years from the date of issue (or three years from when trading began, whichever is later). If you sell or transfer the shares before this three-year window closes, HMRC will claw back your income tax relief, and any gain becomes subject to standard Capital Gains Tax.
Company Eligibility: Which Businesses Qualify for SEIS vs EIS?
For a company to issue tax-free shares under either scheme, it must meet strict HMRC operational criteria. If your firm is seeking funding, you can Understand SEIS tax relief guidelines to make sure your structure passes HMRC scrutiny.
Company Rules for SEIS
- Age: Must have been trading for less than 3 years at the time of share issuance.
- Gross Assets: Must not exceed £350,000 in gross assets immediately before the share issue.
- Employees: Fewer than 25 full-time equivalent employees when shares are issued.
- Funding Cap: Can raise a maximum of £250,000 through SEIS in the company’s lifetime.
- Prior Funding: Must not have raised money under EIS or VCT (Venture Capital Trust) schemes previously.
Company Rules for EIS
- Age: Must have been trading for less than 7 years (or 10 years for Knowledge Intensive Companies).
- Gross Assets: Must not exceed £15,000,000 before the share issue, and no more than £16,000,000 immediately after.
- Employees: Fewer than 250 full-time equivalent employees (under 500 for KICs).
- Funding Cap: Can raise up to £5,000,000 in any 12-month period, up to a lifetime maximum of £12,000,000 (£20,000,000 for KICs).
Qualifying Trade Requirements
Both schemes mandate that the company must carry out a “qualifying trade.” Most commercial businesses qualify, but HMRC explicitly excludes certain financial and asset-heavy sectors, including:
– Leasing or financial services (banking, insurance, money lending).
– Property development or real estate management.
– Legal or accountancy services.
– Farming, market gardening, or forestry.
– Running hotels, guest houses, or nursing homes.
– Energy generation (solar, wind, power generation).
If you work in finance, you can access specialized SEIS EIS support for accountants through Support your investor clients to help verify whether client businesses qualify under these rules.
Can a Startup Use Both SEIS and EIS?
Yes! In fact, using both schemes in sequence is standard practice for fast-growing UK startups.
A typical fundraising lifecycle starts with an SEIS round to get the business off the ground, raising up to £250,000. Once the SEIS cap is reached, or as the company grows beyond early milestones, it transitions to EIS rounds for larger capital injections.
Crucially, SEIS must come first. HMRC rules state that a company cannot issue SEIS shares if it has already issued EIS shares. If you accidentally issue EIS shares first, you permanently forfeit the ability to raise under SEIS. However, you can raise an SEIS and EIS round on the exact same day, provided the SEIS shares are formally issued first and the funds are clearly separated.
Inheritance Tax Relief: The 100% Exemption
One often-overlooked advantage when comparing SEIS vs EIS is Business Relief for Inheritance Tax (IHT). Both SEIS and EIS shares qualify for 100% Business Relief once you have held them for at least two years.
This means if an investor passes away while holding SEIS or EIS shares (provided they have held them for two years), the total value of those shares is excluded from their estate for Inheritance Tax purposes. This makes early-stage equity an effective tool for estate planning alongside its income tax advantages.
Claiming Your Relief: The HMRC Process
Claiming your tax relief is not instantaneous upon sending funds to a startup; it requires formal certification from HMRC.
Here is the step-by-step process:
1. Investment Made: You transfer your investment and receive your share certificate from the company.
2. Compliance Statement (SE1 / EIS1): The company submits a compliance form to HMRC once it has been trading for at least four months, or has spent at least 70% of the raised funds.
3. Compliance Certificate (SE3 / EIS3): HMRC reviews the filing and issues SE3 or EIS3 certificates to the company.
4. Certificate Distribution: The company sends these certificates to you, the investor.
5. Tax Claim: You use the unique certificate reference number to claim tax relief via your Self Assessment tax return, or by requesting an adjustment to your PAYE tax code.
Founders looking to streamline this documentation process can check View Oriel IPO plans to find tools and memberships built to simplify early-stage funding management.
Which Scheme is Right for You?
Choosing between SEIS and EIS comes down to your position in the investment ecosystem.
For Investors:
- Choose SEIS if you are comfortable taking on pre-revenue, high-risk seed deals in exchange for maximum tax protection (50% relief + 50% CGT reinvestment relief).
- Choose EIS if you want to invest larger sums of money (£200k+) or prefer businesses that have already proven market traction, hiring teams, and growing revenue streams.
For Founders:
- Choose SEIS for your first angel round. Promising investors 50% tax relief makes it significantly easier to close your initial £100k to £250k seed round.
- Understand EIS tax relief rules when planning your Series A or growth rounds by visiting Understand EIS tax relief to prepare for larger angel syndicates and venture capital funds.
Navigating tax-efficient investing does not have to involve expensive platform fees. Oriel IPO connects investors and founders directly through a subscription-based model. You can Access the Oriel IPO Hub to browse curated, vetted startup deals and start building your tax-efficient portfolio today.
