SEIS gives 50% income tax relief for investing in very young, very small companies. EIS gives 30% income tax relief for investing in larger, growing companies. SEIS carries the higher risk and the smaller annual limit. Both schemes reward investors for backing UK startups, and neither removes the chance of losing the money.
Lucy Colson advises founders on raising capital. She does not give personal investment or tax advice. This guide is educational. Rates and limits apply to the 2026/27 tax year and were cross-checked on 2 October 2026.
What is the difference between SEIS and EIS?
SEIS is the Seed Enterprise Investment Scheme. EIS is the Enterprise Investment Scheme. Both give tax relief to individuals who buy new shares in qualifying UK startups. SEIS targets the earliest stage. EIS targets the following stage.
The main differences are the size of the tax relief, the size of the company and the annual investment limit.
| Feature (2026/27) | SEIS | EIS |
|---|---|---|
| Income tax relief | 50% | 30% |
| Annual investor limit | £200,000 | £1 million, or £2 million if the amount above £1 million goes into knowledge intensive companies |
| Typical company | Very young, fewer than 25 employees, assets up to £350,000 | Larger and growing, fewer than 250 employees, gross assets up to £30 million before the share issue |
| Minimum holding period | Three years | Three years |
| Capital gains relief | Up to 50% of gains reinvested into SEIS, up to £200,000, is exempt | Gains can be deferred by reinvesting in EIS |
| Gains on the SEIS or EIS shares | Free of capital gains tax if relief is kept and the holding period is met | Free of capital gains tax if relief is kept and the holding period is met |
| Loss relief | Loss can be set against income tax or capital gains tax | Loss can be set against income tax or capital gains tax |
| Risk level | Highest | High |
| Who it suits | Investors able to lose every pound invested | Investors able to lose capital and wait several years |
An investor can use both schemes. Many startups raise SEIS money first and EIS money in a later round.
How does SEIS tax relief work?
SEIS tax relief is a reduction in the investor's income tax bill worth 50% of the amount invested. An investor who puts £10,000 into a qualifying SEIS company can reduce a UK income tax bill by £5,000. Relief cannot exceed the income tax the investor actually owes for the year.
- Annual limit. Up to £200,000 of shares can attract relief each tax year.
- Carry back. An investor can claim against the previous tax year's tax bill.
- Holding period. Shares must be held at least three years or the relief is withdrawn.
- Capital gains. Gains on qualifying SEIS shares are free of capital gains tax. A gain made elsewhere and reinvested in SEIS can also be partly exempt.
How does EIS tax relief work?
EIS tax relief is a reduction in the investor's income tax bill worth 30% of the amount invested. An investor who puts £10,000 into a qualifying EIS company can reduce a UK income tax bill by £3,000.
- Annual limit. Up to £1 million of shares can attract relief each tax year. The limit doubles to £2 million if the amount above £1 million goes into knowledge intensive companies.
- Holding period. Shares must be held at least three years or the relief is withdrawn.
- Capital gains deferral. A gain from another asset can be deferred by reinvesting it in EIS shares.
- Company limits. From 6 April 2026 the company limits rose. A company can raise up to £10 million a year, or £20 million if knowledge intensive. The lifetime limits are £24 million and £40 million.
What happens if the company fails?
Tax relief reduces the loss and never removes it. The next table shows a £10,000 investment in a company failing completely. It assumes a higher rate taxpayer paying 40% income tax and enough tax liability to use all the relief.
| Step | SEIS | EIS |
|---|---|---|
| Amount invested | £10,000 | £10,000 |
| Income tax relief claimed | £5,000 at 50% | £3,000 at 30% |
| Cost after relief | £5,000 | £7,000 |
| Loss relief at 40% on the remaining cost | £2,000 | £2,800 |
| Net loss | £3,000 | £4,200 |
SEIS softens the loss more because the relief is larger. An EIS investor in the same position still loses 42% of the amount invested. An additional rate taxpayer would receive more loss relief. A basic rate taxpayer would receive less. Relief only offsets tax actually payable, so people with a low tax bill cannot use it in full.
What are the main risks for first-time investors?
Startup investing is among the highest risk activities open to individuals. Most early-stage companies fail or return less than was invested.
- Total loss. Many investments end at zero.
- Illiquidity. Shares in private companies cannot be sold on an open market. Exits can take five to ten years.
- Dilution. A founder raising further rounds reduces every earlier shareholder's percentage.
- Relief withdrawal. HMRC can withdraw relief if the company stops qualifying or the shares are sold early.
- Concentration. One or two companies can make up the whole portfolio.
A reader should only invest an amount they could lose in full without harm.
What is the difference between VCT and EIS?
A Venture Capital Trust (VCT) is a listed company investing in many small companies. An EIS investment buys shares in one company directly.
| Feature (2026/27) | VCT | EIS |
|---|---|---|
| Income tax relief | 20% for shares issued from 6 April 2026 | 30% |
| Annual limit | £200,000 | £1 million, or £2 million with knowledge intensive companies |
| Holding period | Five years | Three years |
| What is owned | Shares in a fund holding many companies | Shares in one company, or in a manager's EIS fund |
| Spread of risk | Many companies | One company unless the investor builds a spread |
| Dividends | Tax free for qualifying holders | Taxed as normal dividends |
| Selling shares | VCT shares trade, but often at a discount to net asset value | Shares are private and hard to sell |
VCT income tax relief fell from 30% to 20% on 6 April 2026. A VCT suits investors who want a fund manager to choose and monitor companies. EIS suits investors who want to pick directly or through an EIS fund.
How can an individual invest in startups using SEIS or EIS?
Three routes exist for individuals. Each differs in control, effort and spread of risk.
- Direct investment. The investor buys shares in one company. Control and effort are highest. Risk is concentrated.
- Angel syndicate. A group of angels invest together alongside a lead investor, who often does the diligence. Angel groups often offer SEIS and EIS deals.
- EIS or SEIS fund. A manager invests in a portfolio of qualifying companies. Fees apply. Spread is wider and effort is lower.
An investor can compare these routes with an adviser. Investors should read the company's advance assurance letter from HMRC, which confirms the shares are expected to qualify. The letter is not a guarantee.
Are SEIS and EIS regulated investments?
Offers to the public fall under FCA financial promotion rules. Investors in private startup shares are normally asked to confirm they are a restricted, high net worth or sophisticated investor. The UK has no official accredited investor status. Investors should read the terms carefully and ask an FCA-authorised adviser if unsure.
What should a first-time investor check before investing?
- Confirm the company holds advance assurance from HMRC.
- Read the founders' background and the business model.
- Understand how the shares will be valued and diluted in later rounds.
- Check fees, the lead investor's track record and the exit plan.
- Check the amount sits within personal risk capacity.
- Take advice on personal tax position.
The angel investor guide sets out a learning path before a first deal. The tax efficient investing overview shows where these schemes sit among other routes.
Frequently asked questions
Is SEIS better than EIS?
Each suits a different company stage. SEIS gives more relief and carries more risk. EIS gives less relief and suits larger, more established companies.
Can I use SEIS and EIS together?
Yes. Many investors back a company through SEIS in the first round and EIS in a later round. Both limits apply separately.
How long do I have to hold SEIS and EIS shares?
Three years from the share issue to keep income tax relief on either scheme. Selling earlier means relief can be withdrawn.
What is the SEIS tax relief limit?
Up to £200,000 of SEIS investment a tax year attracts 50% income tax relief.
What is the EIS tax relief limit?
Up to £1 million of EIS investment a tax year attracts 30% income tax relief. The limit rises to £2 million when the extra amount goes into knowledge intensive companies.
Can I claim loss relief if the company fails?
Yes. A loss on qualifying shares can be set against income tax or capital gains tax, after the original income tax relief is deducted from the cost.
Is there a minimum amount to invest?
Schemes have no legal minimum. Syndicates and funds set their own minimums, which are often between £5,000 and £25,000.
Sources and date
Cross-checked on 2 October 2026. The official guidance is on GOV.UK for EIS and GOV.UK for SEIS. Annual limits and gains reliefs come from the Deloitte 2026/27 tax rates and the M&G scheme comparison. The 2026 company limit changes and the VCT relief cut come from the ICAEW Budget summary and the Saffery business summary.