EIS income tax relief cuts your income tax bill by 30% of the amount you subscribe for new shares in a qualifying Enterprise Investment Scheme company. In 2026 to 2027 you can claim on up to £1 million a year, or £2 million if everything above £1 million goes into knowledge intensive companies, and you must stay unconnected with the company and hold the shares for at least three years.

How does the relief actually reduce your tax?

EIS relief is a tax reduction, not a deduction from income. Section 158 of the Income Tax Act 2007 gives a reduction equal to tax at the EIS rate, which section 158(2A) sets at 30%, on the amount subscribed. Section 158(3) says the reduction is given at Step 6 of the income tax calculation in section 23, so your income, allowances and other reliefs are worked through first, tax is calculated, and only then is the EIS reduction taken off.

The relief cannot take your liability below nil. HMRC’s Venture Capital Schemes Manual at VCM10530 explains that if 30% of the subscription would exceed your liability, the reduction is whatever brings the liability to nil. GOV.UK guidance for investors is explicit that unused relief cannot be carried forward to future years. The only flexibility is the option to treat shares as issued in the previous tax year, covered in carrying back EIS and SEIS relief.

Where you have several tax reductions in one year, section 27 sets the order: VCT relief first, then EIS relief, then SEIS relief, then the others in the list. Costs incidental to the subscription, such as fees, are not part of the amount on which relief is given.

How much can you invest and still get relief?

Section 158(2ZA) defines the “allowable amount” for a tax year:

  • £1 million if none of your qualifying shares are in knowledge intensive companies (KICs);
  • £2 million if you subscribed £1 million or more for KIC shares;
  • otherwise, £1 million plus whatever you subscribed for KIC shares.

In practice that means up to £2 million in total, with no more than £1 million in companies that are not KICs. HS341 notes that your EIS3 certificate states whether the company was a KIC when the shares were issued, so you do not have to work this out yourself.

Finance Act 2026 raised the amounts that companies can raise under EIS from 6 April 2026 (to £10 million a year and £24 million in total for most companies, and £20 million and £40 million for KICs, according to VCM1010). Those are company limits. The investor limits above did not change, and the 30% EIS rate is unchanged; it was the VCT rate that fell from 30% to 20%.

If you subscribe more than the allowable amount, you choose how the relief is attributed. HS341 gives the example of £250,000 in each of four companies with relief limited to £500,000: you can take full 30% relief on two companies, or 15% across all four. The choice affects what happens later on a sale, so it deserves thought.

Which shares and subscriptions qualify?

The GOV.UK investor guidance sets out the basic conditions. The shares must be newly issued, fully paid in cash when issued, and be full risk ordinary shares that are not redeemable and carry no special rights to assets on a winding up. Limited preferential dividend rights are allowed, but dividends cannot accumulate or be varied.

HS341 lists situations that block relief altogether:

  • you did not subscribe for commercial reasons, or the subscription was part of a tax avoidance arrangement;
  • you have a loan that would not have been made, or not on the same terms, but for the investment;
  • someone has granted you an option to make them buy the shares;
  • there are arrangements to secure a return, guarantee an exit or protect you from normal commercial risk;
  • for shares issued on or after 18 November 2015, you already held other shares in the company that were neither subscriber shares nor shares covered by an EIS3.

The company side (trading activity, gross assets, use of the money, the risk to capital condition) is covered in our guide to the Enterprise Investment Scheme.

When are you “connected” with the company?

Section 163 requires you to be unconnected with the company throughout period A. VCM10540 explains that period A runs from two years before the share issue (or incorporation, if later) to the termination date, which is normally the third anniversary of the issue, or of the start of trade if the company had not yet started trading.

HS341 says you are connected if you, or an associate, are an employee, partner or paid director of the company or a subsidiary, or control it, or hold more than 30% of the ordinary share capital or voting power, or would be entitled to more than 30% of the assets on a winding up. Associates include a spouse or civil partner, parents, grandparents, children and grandchildren, business partners and certain trust connections. VCM11080 confirms that holdings are looked through: a 25% direct holding plus half of a company that owns another 20% gives 35%, so relief is lost.

There is a narrow exception for the period between incorporation and the earlier of the company starting to prepare to trade or issuing shares beyond the subscriber shares. Owning an off the shelf company during that window does not count.

Can you be a director and still claim?

Yes, in two situations. First, an unpaid director is not connected merely by being a director. Section 168 lists “permitted payments” that do not make you a paid director, including reimbursed expenses, reasonable commercial interest, dividends that are a normal return, and market rent.

Second, the “business angel” rule in section 169 lets a paid director qualify if, when the shares are issued, they have never been connected with the company or involved in its trade. Later issues also qualify if made before the termination date of the first qualifying issue. VCM11070 gives the example of a retired consultant who invests in 2010, again in 2011 and again in December 2013: the first two qualify, but the third falls more than three years after the first issue and gets no relief. Remuneration must be reasonable.

What does the relief look like in practice?

Illustration only. Priya has income tax liability of £48,000 for 2026 to 2027 after allowances. She subscribes £100,000 for shares in a company that is not a KIC and receives an EIS3. Her relief is 30% of £100,000, which is £30,000, reducing her liability to £18,000.

If her liability had been only £20,000, the relief would be capped at £20,000 and the other £10,000 would be lost, unless she treated part of the issue as made in 2025 to 2026 and had enough liability there. If she had subscribed jointly with her husband, HS341 says each would be treated as subscribing £50,000, even if Priya paid it all, and each would need their own EIS3.

What mistakes come up most often?

  • Claiming before the EIS3 arrives. HS341 says no relief is due until you hold the certificate; see claiming EIS relief with an EIS3 certificate.
  • Putting more than £1 million into non KIC companies in a year and assuming the £2 million limit covers it.
  • Forgetting associates. A parent’s or child’s shares count towards the 30% test.
  • Taking a salary or consultancy fee from the company without checking the paid director rules.
  • Arranging a bank loan secured on the EIS shares. Statement of Practice 6/98, reproduced at VCM11030, says a loan secured on the shares is treated as linked, and relief is denied.
  • Selling or receiving value within three years, which triggers clawback under the rules in when EIS or SEIS relief is withdrawn.

Income tax relief also underpins the capital gains reliefs. Disposal relief on a later sale requires income tax relief that has not been withdrawn, and gains can separately be postponed through EIS deferral relief.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.