Tax Relief for Individuals
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How individuals can claim tax relief on investments
UK individuals who want to invest in new, growing or higher-risk businesses can benefit from several valuable tax reliefs. Schemes such as the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs) offer generous income tax relief and capital gains tax benefits, helping you cut your tax bill while supporting small companies.
What Is Tax Relief for Individuals?
Tax relief for individuals covers government-backed schemes that lower your tax bill when you invest in certain businesses. These reliefs, including the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs), encourage private investors to back small, high-risk or growing companies. In return, you can claim income tax relief, capital gains tax exemptions or deferrals.
Getting Started with Tax Relief for Individuals
Before you invest, it is important to understand how each scheme works, how much you can invest each year, and which conditions you must meet to claim the reliefs. Knowing the rules helps you make the most of the available allowances, manage your tax liability, and support businesses that could grow in value over time.
Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS) gives tax relief to individuals who are prepared to invest in new and growing companies. Investors can obtain generous income tax and capital gains tax (CGT) breaks on their investment, and companies can use the relief to attract extra investment to develop their business. Through EIS, individuals are entitled to relief on investments in certain unquoted trading companies. A junior version of EIS, the SEIS, is also available.
Capital gains from the disposal of other assets may be deferred by making an EIS investment.
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) gives tax relief to individuals who are prepared to invest in new and growing companies. Investors can obtain generous income tax and capital gains tax (CGT) breaks on their investment, and companies can use the relief to attract extra investment to develop their business. SEIS is a junior version of EIS.
An individual who makes a capital gain on another asset and uses the amount of that gain to make a SEIS investment will not pay tax on 50% of the gain (subject to certain conditions). SEIS reinvestment relief can exempt 50% of a qualifying capital gain when the relevant amount is reinvested in qualifying SEIS shares, subject to the SEIS investment limits and other conditions. For a £200,000 qualifying SEIS investment, the maximum reinvestment relief can be £100,000.
Social Investment Relief (SIR)
Social Investment Relief (SIR) was created to encourage private individuals to invest in social enterprises, including charities.
SIR closed to new investments from 6 April 2023.
Venture Capital Trusts (VCTs)
Venture Capital Trusts (VCTs) are designed to encourage private individuals to invest in smaller, high-risk unquoted trading companies. VCTs work through indirect investment via a managed fund. In effect, they are very like the investment trusts available on the stock exchange, although in a high-risk environment. Individuals are entitled to relief on investments in VCTs.
(All reliefs are subject to detailed conditions being met.)
Who Qualifies for Tax Relief for Individuals?
Most UK taxpayers can qualify for these investment tax reliefs if they meet the scheme rules and invest in approved companies or funds.
For EIS and SEIS
You must invest in qualifying unquoted trading companies. You cannot be connected to the company; for example, you generally cannot own more than 30% of the shares or be an employee (although some directors can still qualify).
For VCTs
Individuals aged 18 or over can subscribe for qualifying new VCT shares and may claim income tax relief subject to the scheme rules and the £200,000 annual limit.
Other Requirements
You must be a UK taxpayer to claim the income tax relief. You also need to follow HMRC's rules on the maximum annual investment limits and keep your shares for the minimum holding period to benefit from the tax-free capital gains or deferral.
How to Claim Tax Relief for Individuals
Claiming tax relief through EIS, SEIS or VCTs is straightforward if you follow the correct steps and keep good records.
Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)
When you invest in an approved company, it will give you an EIS or SEIS certificate (form EIS3 or SEIS3). You use this form to claim income tax relief through your Self Assessment tax return. If you want to defer capital gains, you will also include the details when you submit your return.
Venture Capital Trusts (VCTs)
When you invest in VCT shares, you will receive a VCT certificate. You claim the income tax relief by including the details in your Self Assessment tax return. Dividend income from VCTs is usually tax-free and does not need to be reported if it is within the limits.
Keep Evidence
Always keep your investment certificates and HMRC paperwork safe. If you sell or dispose of your shares too early, you may lose the relief and owe extra tax.
Timing
Make sure you claim within the time limits. You normally have up to five years from the end of the tax year in which you made the investment to claim income tax relief.