For UK tech startups, securing funding is often the difference between breakthrough success and joining the 60% of new businesses that fail within their first three years.
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) represent powerful funding vehicles that offer substantial tax incentives to investors while providing crucial capital to high-growth companies.
Understanding these schemes is essential for both founders seeking investment and individuals looking for tax-efficient investment opportunities.
This blog post breaks down everything you need to know about SEIS and EIS for the 2025/26 tax year.
SEIS and EIS Tax Relief
What are SEIS and EIS?
The UK government created both SEIS and EIS schemes to encourage investment in early-stage, higher-risk companies by offering significant tax reliefs to investors.
SEIS targets very early-stage companies, while EIS supports slightly more established businesses that are still in growth phases.
SEIS vs EIS: Key Comparison
| Feature | SEIS | EIS |
|---|---|---|
| Maximum Investment | £100,000 per investor per tax year | £1 million per investor per tax year (up to £2 million for knowledge-intensive companies) |
| Company Maximum | £250,000 lifetime limit | £2 million per year (£10 million lifetime limit) |
| Income Tax Relief | 50% | 30% |
| Minimum Holding Period | 3 years | 3 years |
| Capital Gains Tax Relief | 100% exemption on gains | 100% exemption on gains |
| Loss Relief Available | Yes | Yes |
| CGT Reinvestment Relief | 50% exemption on reinvested gains | Deferral of gains reinvested |
| Company Age Limit | <2 years trading | <7 years trading (up to 10 years for knowledge-intensive) |
| Company Size | <25 employees, <£350,000 gross assets | <250 employees, <£15 million gross assets |
SEIS and EIS Benefits for Investors
The tax advantages of these schemes are substantial and can significantly enhance investment returns while reducing risk.
SEIS Benefits (2025/26 Tax Year)
- 50% Income Tax Relief
a. Invest £100,000, receive £50,000 off your income tax bill
b. Relief can be carried back to the previous tax year
c. Example: A higher-rate taxpayer investing £50,000 could reduce their tax bill by £25,000
- Capital Gains Tax (CGT) Exemption
a. Pay no CGT on gains from SEIS shares held for at least 3 years
b. Example: If your £50,000 investment grows to £150,000, the £100,000 gain is completely tax-free
- Loss Relief Against Income Tax
a. If the investment fails, claim loss relief at your income tax rate
b. Available even if the company fails within the 3-year holding period
c. Example: A 45% taxpayer who loses their £50,000 investment could claim relief worth £11,250 (after accounting for the initial 50% relief)
- CGT Reinvestment Relief
a. 50% exemption on gains reinvested into SEIS companies
b. Example: If you have a £40,000 capital gain and invest it in SEIS, you could reduce your CGT liability by £6,000
- Inheritance Tax Benefits
a. SEIS shares held for at least 2 years typically qualify for Business Relief
b. Can result in 100% exemption from inheritance tax
SEIS and EIS Benefits for Investors
EIS Benefits (2025/26 Tax Year)
- 30% Income Tax Relief
a. Invest £100,000, receive £30,000 off your income tax bill
b. Maximum relief of £300,000 per year (£600,000 for knowledge-intensive investments)
c. Relief can be carried back to the previous tax year
- Capital Gains Tax (CGT) Exemption
a. Pay no CGT on gains from EIS shares held for at least 3 years
b. Example: If your £100,000 investment grows to £300,000, the £200,000 gain is completely tax-free
- Loss Relief Against Income Tax
a. If the investment fails, claim loss relief at your income tax rate
b. Available even if the company fails within the 3-year holding period
c. Example: A 45% taxpayer who loses their £100,000 investment could claim relief worth £31,500 (after accounting for the initial 30% relief)
- CGT Deferral Relief
a. Defer CGT on other gains reinvested into EIS companies
b. Gain becomes payable when EIS shares are sold
c. No time limit on gains that can be deferred
- Inheritance Tax Benefits
a. EIS shares held for at least 2 years typically qualify for Business Relief
b. Can result in 100% exemption from inheritance tax
Income Tax Relief
Benefits for Startups
For tech founders, these schemes offer advantages beyond simply raising capital:
1. Investor Attraction
- Significantly reduces investor risk through tax incentives
- Makes your startup more appealing compared to non-qualifying investments
- Enables raising capital at earlier stages than might otherwise be possible
2. Higher Valuations
- Tax benefits can effectively “discount” the investment cost
- May lead to better terms and higher valuations
- Investors might accept lower equity stakes due to tax advantages
3. Supportive Investors
- Attracts investors with a longer-term outlook (minimum 3-year holding period)
- Often brings in experienced angel investors with valuable expertise
- Creates a network of advocates with a vested interest in your success
4. Compliance Framework
- Provides a structured approach to fundraising
- Establishes good governance practices early
Eligibility Criteria for Companies
SEIS Company Requirements
- Less than 2 years old when shares are issued
- Fewer than 25 employees
- Gross assets not exceeding £350,000
- Must be a UK company conducting a qualifying trade
- Cannot have previously raised funds under EIS or VCT schemes
- Cannot have arrangements to become a subsidiary
EIS Company Requirements
- Generally less than 7 years old (10 years for knowledge-intensive companies)
- Fewer than 250 employees (500 for knowledge-intensive companies)
- Gross assets not exceeding £15 million
- Must be a UK company conducting a qualifying trade
- Cannot raise more than £2 million under SEIS, EIS, and VCT schemes combined in 12 months
- Total lifetime limit of £10 million (£20 million for knowledge-intensive companies)
Qualifying Trades
Most tech startups qualify, but certain activities are excluded:
- Dealing in land, commodities, or futures
- Financial activities like banking and insurance
- Legal or accounting services
- Property development
- Operating or managing hotels, nursing homes
- Coal and steel production
- Farming and forestry
The Application Process
1. Advanced Assurance
While not mandatory, obtaining advance assurance from HMRC is highly recommended:
- Submit your business plan, financial projections, and details of the investment
- Typically takes 4-6 weeks for HMRC to respond
- Provides investors with confidence that the investment will qualify
2. Share Issuance
- Issue new ordinary shares with full risk to capital
- Shares cannot have preferential rights or be redeemable
- Must be paid in full, in cash, at the time of issue
3. HMRC Compliance
- Submit Form SEIS1/EIS1 after shares have been issued
- HMRC reviews and issues SEIS2/EIS2 forms to the company confirming compliance
- The company then uses this to complete SEIS3/EIS3 certificates to provide to individual investors
Strategy: Combining SEIS and EIS
Many tech startups strategically use both schemes:
- Initial SEIS Round
a. Raise up to £250,000 under SEIS for early development
b. Provides maximum tax benefits for early-stage investors
- Follow-on EIS Round
a. Raise larger amounts under EIS as the company grows
b. Same investors can participate in both rounds
- Strategic Planning
a. Consider reserving part of your SEIS allowance for follow-on from early investors
b. Plan funding requirements to align with scheme thresholds
SEIS and EIS Strategy
Common Pitfalls to Avoid
For Companies:
- Missing the Timing Window
a. SEIS must be used within 2 years of trading
b. Advanced assurance should be sought early
- Documentation Errors
a. Incomplete paperwork can lead to disqualification
b. Maintain clear records of how funds are used
- Violating Continuity Rules
a. Major changes to the business within 3 years could invalidate relief
b. Certain corporate actions can trigger clawback of tax benefits
For Investors:
- Exceeding Investment Limits
a. Annual investment thresholds are strictly enforced
b. Relief is capped based on tax liability
- Insufficient Holding Period
a. Selling before 3 years will trigger clawback of relief (excluding if company winds up)
b. Plan for a medium-term investment horizon
- Connected Persons Rules
a. Cannot be an employee or hold >30% of shares (including associates)
b. Family connections can affect eligibility
The Future of SEIS/EIS for UK Tech
The UK government continues to demonstrate strong support for these schemes, recognising their vital role in fostering innovation and growth.
Recent consultations indicate a commitment to maintaining and potentially enhancing these reliefs to support the UK’s position as a tech hub.
For the 2025/26 tax year, these schemes remain a cornerstone of the UK’s strategy to support high-growth businesses and encourage investment in innovation.
Next Steps for Founders
If you’re considering raising funds through SEIS or EIS:
- Check Eligibility – Ensure your company meets all criteria
- Timing Strategy – Plan your fundraising timeline to maximise benefits
- Seek Advanced Assurance – Provide potential investors with confidence
- Investor Communication – Clearly explain the tax benefits in your pitch materials
- Professional Support – Work with advisors experienced in SEIS/EIS fundraising
By leveraging these powerful tax incentives effectively, you can make your startup significantly more attractive to investors while securing the capital needed to fuel your growth.
This blog post is intended as general guidance only and does not constitute tax advice. Tax rules and rates are subject to change, and you should consult with a qualified advisor for advice specific to your circumstances.
Meet Serkan
Serkan is the Co-partner of M.Tatar & Associates, a chartered accountancy, tax advisory, and statutory auditor practice in North London. He specialises in helping tech start-ups’ Founders and CEOs make informed financial decisions, with a sustainably-focused agenda and all things investment property. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn. Book a call today to learn more about what Serkan and M.Tatar & Associates can do for you.
