Last reviewed 29 August 2026
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are UK tax reliefs designed to encourage investment in smaller, higher-risk companies. For investors they can transform the risk profile of an early-stage investment. For founders they widen the pool of people willing to write a cheque.
They are also technical. Relief depends on conditions attaching to the company, to the shares issued, to how the money is used and to the investor's own position — and many of those conditions must continue to be met for three years after the investment.
This guide explains the framework in practical terms. It is not tax advice: the schemes interact with each investor's personal position, so investors should take their own advice and companies should work with an accountant alongside their legal adviser.
What the reliefs offer
SEIS is aimed at the earliest stage. Broadly, individual investors can claim income tax relief on qualifying investments, with a capital gains exemption on disposal of the shares after the minimum holding period and loss relief if the investment fails. EIS applies to slightly later-stage companies, with a lower rate of income tax relief but higher investment limits.
Both schemes also offer capital gains deferral or reinvestment advantages in defined circumstances, and both can qualify for business relief for inheritance tax purposes after a qualifying period. Rates and limits change with fiscal events, so always check current HMRC guidance before relying on specific figures.
Company qualifying conditions
The company must be carrying on, or preparing to carry on, a qualifying trade. Several trades are excluded, including dealing in land, financial activities, leasing, legal and accountancy services, property development and energy generation benefiting from subsidies.
There are limits on gross assets, on the number of full-time equivalent employees and on the age of the trade at the date of investment, and the company must have a permanent establishment in the UK. The company must not be under the control of another company. Groups are permitted but subsidiaries must generally be at least 51% owned.
Share and investor conditions
The shares must be new, fully paid ordinary shares subscribed for in cash, carrying no present or future preferential right to dividends or assets on a winding up, and no right to be redeemed. This is where legal drafting matters most: a preference share structure that looks perfectly ordinary in a venture deal can disqualify the whole round.
Investors must not be connected with the company. Connection includes holding more than 30% of the shares, voting power or assets on a winding up, together with associates, and (for EIS) being an employee. Founders therefore usually cannot claim relief on their own founder shares. There are limited exceptions for business angels who become directors, which need careful handling.
Advance assurance and compliance
Advance assurance is a non-binding indication from HMRC that a proposed share issue is likely to qualify. It is not mandatory but most investors expect it, and it is far easier to fix a structural problem before the money arrives than after.
After the shares are issued and the money has been spent — or the trade has been carried on for the required period — the company submits a compliance statement to HMRC and, once accepted, issues certificates to investors so they can claim relief. Keep the paperwork tidy: board minutes, subscription agreements, share certificates and the register of members all get scrutinised.
Common mistakes that lose relief
The recurring problems are: issuing shares before the subscription money is received in full; granting preferential rights in the articles or the shareholders' agreement; loans from investors converting into shares in a way that fails the 'subscribed for in cash' test; using the funds for a non-qualifying purpose; and breaching a condition within the three-year period through a group reorganisation or a change of trade.
Buyback and put option arrangements are another trap: any arrangement for the shares to be redeemed or bought back can disqualify the investment. Founders sometimes agree these informally to reassure a nervous investor and unwittingly destroy the relief they were relying on.
How the legal documents fit together
A typical qualifying round involves a subscription agreement, amended articles, a shareholders' agreement, board and shareholder resolutions, and Companies House filings for the allotment. Every one of those documents can affect scheme eligibility.
Sequence matters. Advance assurance first, then finalise the articles and shareholders' agreement to match what HMRC was shown, then take the money, then issue the shares, then file. Changing terms after assurance without re-checking is a frequent cause of failure.
Key points
- SEIS suits the earliest stage; EIS covers slightly later rounds with higher limits.
- Shares must be new, fully paid ordinary shares subscribed for in cash with no preferential rights.
- Investors holding more than 30%, and most employees, are connected and cannot claim.
- Advance assurance is not compulsory but almost all investors expect it.
- Buyback or redemption arrangements can disqualify an otherwise valid investment.
- Conditions must keep being met for three years after the shares are issued.
Frequently asked questions
- Can founders claim SEIS relief on their own shares?
- Generally no. Founders are usually connected with the company because they hold more than 30% or are employees, and connected investors cannot claim relief. Founder shares are also typically issued at incorporation rather than as a qualifying subscription.
- Do we need advance assurance?
- It is not a legal requirement, but investors overwhelmingly expect it and many will not commit without it. It also flags structural problems while they are still cheap to fix.
- Can convertible loan notes be SEIS or EIS qualifying?
- The loan itself is not, and conversion arrangements need care because the shares must be subscribed for in cash. Advance subscription agreements are often used instead, but they must be non-refundable, not carry interest and convert within a defined period. Take advice before using either.
- What happens if we breach a condition after investment?
- Relief can be withdrawn or reduced, and investors may face a clawback. Because the company usually holds the obligation to notify HMRC of disqualifying events, and investors often have contractual protections, breaches can also create liability under the subscription documents.