EIS deferral relief lets you postpone capital gains tax on a gain from selling any asset by subscribing for new shares in a company that qualifies under the Enterprise Investment Scheme. The shares must be issued between one year before and three years after the gain arises, and the deferred gain comes back into charge when you sell the shares, become non resident within the qualifying period, or the shares stop qualifying.

What does EIS deferral relief actually do?

The relief is in Schedule 5B to the Taxation of Chargeable Gains Act 1992. HMRC’s Venture Capital Schemes Manual at VCM23080 explains that it works by treating the gain as not arising until some future event. It is a postponement, not an exemption: the original gain is parked and is charged later, in the tax year of the event that revives it.

It is one of two capital gains reliefs within EIS. HS297 distinguishes deferral relief, which shelters a gain on some other asset, from disposal relief, which exempts the gain on the EIS shares themselves when you sell them after at least three years with full income tax relief. The two can work together, but disposal relief never covers the revived deferred gain. HS297 is explicit that disposal relief is not available against a deferred gain that is revived on a disposal of the EIS shares or another event.

For the wider scheme, including the 30% income tax relief and the company conditions, see the Enterprise Investment Scheme.

Which gains can be deferred?

Any chargeable gain on the disposal of any asset can be deferred. HS297 lists no restriction on the type of asset, so gains on let property, quoted shares, a business or a second home all qualify. VCM23010 adds that a gain previously deferred under EIS (or under the old VCT deferral rules) can itself be deferred again when it is revived, so an investor can roll a gain forward through successive EIS subscriptions.

The gain deferred is the chargeable gain after mandatory deductions and any reliefs that must be claimed. You choose how much to defer. HS297 gives the example of a £100,000 gain where the investor defers £97,000 and leaves £3,000 to be covered by the annual exempt amount. For 2026 to 2027 the annual exempt amount is £3,000.

There is an important exception. Under Schedule 5B paragraph 10, summarised at VCM23260, you cannot defer a gain on shares in a company by subscribing for EIS shares in the same company or a company in the same group.

What is the reinvestment window?

Schedule 5B paragraph 1(3) defines the qualifying time as any time in the period beginning one year before and ending three years after the gain accrues. The relevant date for the shares is the date they are issued to you, which appears on form EIS3. HS297 gives an example: a gain on 6 June 2022 can be deferred against EIS shares issued between 6 June 2021 and 6 June 2025.

The date of the gain is the date of disposal for capital gains purposes, which for a sale under contract is normally the date the contract becomes unconditional rather than completion; see when a disposal happens for CGT. If the shares were issued before the gain arose, you must still hold them at the date of the gain.

HMRC has a statutory power to extend the window. VCM23030 says it will do so only where you had a firm intention to comply, were prevented by circumstances beyond your control, and acted as soon as you reasonably could. A late change of mind, or spending the sale proceeds on something else, will not normally count.

Which shares and investors qualify?

Under Schedule 5B paragraph 1(2) the shares must be eligible ordinary shares in a qualifying company, subscribed for wholly in cash, fully paid up on issue, and issued for genuine commercial reasons rather than as part of tax avoidance arrangements. The money raised must be used for a qualifying business activity. You do not need to use the actual sale proceeds; VCM23080 confirms there is no requirement that the proceeds are applied directly to subscribe for the shares.

You must be UK resident both when the gain accrues and when the shares are issued (VCM23040). Relief is denied if a double tax treaty treats you as resident elsewhere so that you would not be liable to UK tax on an immediate sale of the shares.

A point that often surprises people: the shares do not need to attract EIS income tax relief (VCM23020). The GOV.UK guidance for investors confirms you can get deferral relief even if income tax relief is not available because you are connected with the company. There is also no upper limit on the amount an individual can invest for deferral, although HS297 notes the amount a single company can raise is limited. Deferral relief is not available where there are pre arranged exits or investor protection arrangements at the time of issue (Schedule 5B paragraph 11, VCM23270).

When does the deferred gain come back into charge?

Schedule 5B paragraph 3, explained at VCM23110 and in HS297, sets out the chargeable events:

  • you dispose of the EIS shares, except to a spouse or civil partner you live with; the gain then revives when that person disposes of them;
  • you, or a spouse or civil partner who received the shares from you, become non resident before the termination date, which VCM23070 defines as the third anniversary of the share issue or, if the company had not started its trade when the shares were issued, the third anniversary of the start of trading;
  • the shares cease to be eligible shares, for example because the company stops being a qualifying company.

There is a let out for working abroad. VCM23120 says no chargeable event arises where you become non resident because you take an employment whose duties are all performed outside the UK, you become UK resident again within three years, and you do not dispose of any of the shares in the meantime.

Death is not a chargeable event. VCM23130 states that the deferred gain is not brought back into charge on the investor’s death, and events after death do not revive it either. A gain deferred until death is therefore never taxed.

How much of the gain is revived, and when is it taxed?

Under Schedule 5B paragraph 4 (VCM23150) the whole deferred gain is revived if you dispose of all the shares or if the event is not a disposal, such as becoming non resident. If you sell only some of the shares, a proportionate part is revived. HS297 example 8: a £20,000 deferred gain on 20,000 shares, with 15,000 sold, revives £15,000.

The revived gain is treated as accruing at the time of the chargeable event, so it is taxed in that later tax year and the annual exempt amount for that year can be set against it. The tax is charged on whoever makes the disposal, becomes non resident or holds the shares when they stop qualifying (VCM23190). Disposals from a holding are identified first in, first out, and where shares were acquired on the same day disposals are matched first with shares that do not carry deferral relief (HS297).

How does it work in practice?

Illustration only. Priya sells a buy to let flat in May 2026 and makes a chargeable gain of £80,000. In January 2027 she subscribes £77,000 for EIS shares and receives form EIS3. She claims deferral relief of £77,000 and uses her £3,000 annual exempt amount on the rest, so her chargeable gain on the flat for 2026 to 2027 is reduced to nil once the claim is made.

If she sells all the shares in 2030, the £77,000 is revived in that tax year and taxed at the rates then in force, alongside any gain on the shares themselves (which may be exempt under disposal relief if she also had income tax relief). If she instead reinvests in another EIS company within the window, she can defer the revived gain again. If she still holds the shares when she dies, the deferred gain falls away.

How do you claim, and what goes wrong?

You cannot claim until the company has given you form EIS3 (VCM23200). The claim is made on the form attached to the EIS3 and sent with the capital gains summary pages of your return, with a clear statement that EIS deferral relief is claimed. HS297 and VCM23090 set the deadline as five years after 31 January following the end of the tax year in which the shares were issued. The claim reduces the gain of the year of the original disposal, so any repayment relates to that year.

Common mistakes:

  • counting the window from completion of the sale rather than the date of disposal, or from the date money was paid to the company rather than the issue date on the EIS3;
  • assuming disposal relief will also cover the deferred gain when the EIS shares are sold;
  • emigrating within the first three years without realising the whole deferred gain is revived;
  • trying to defer a gain on shares into new shares of the same company or group.

For comparison with the other venture capital reliefs, see SEIS reinvestment relief, which exempts half the reinvested gain permanently, and venture capital trusts, which no longer offer deferral. How the deferred gain fits into the overall computation is covered in how capital gains tax is calculated.

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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.