The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are UK government initiatives that dramatically de-risk investment by offering angels generous tax relief. Understanding these schemes is key for a successful funding round, as many UK angels will only consider eligible opportunities.
What are SEIS and EIS?
SEIS and EIS are government schemes designed to encourage individuals to invest in small, risky UK companies. The idea, quite rightly, is that these companies are the ones that power innovation and economic growth. The government does this by providing a package of tax incentives to the investor, which significantly reduces the financial risk.
What are the key tax benefits for investors?
The tax incentives are the main driver for angel investors. The key benefits include:
Income Tax Relief: Investors can claim a percentage of their investment back against their income tax bill. 50% for SEIS and 30% for EIS. For example, a £10k SEIS investment has an immediate net cost of only £5k.
Capital Gains Tax (CGT) Exemption: If the shares are held for a minimum of three years, any profit from their sale is 100% exempt from Capital Gains Tax.
Loss Relief: If the startup fails, the investor can offset their net loss (the amount invested minus the initial income tax relief) against their income tax. This provides substantial downside protection.
Inheritance Tax (IHT) Relief: The shares are also likely to be exempt from IHT if held for at least two years.
What is the difference between SEIS and EIS?
SEIS is designed for the very earliest stage of a company’s life (typically the first round), while EIS is for slightly more established businesses seeking follow-on funding.
| Criteria | SEIS (Seed Enterprise Investment Scheme) | EIS (Enterprise Investment Scheme) |
|---|---|---|
| Purpose | Very early-stage, typically the first round of external funding | Early-stage, typically for follow-on or larger seed rounds |
| Max Investment (Company Lifetime) | £250,000 | £24 million (£40 million for knowledge-intensive companies) |
| Investor Income Tax Relief | 50% | 30% |
| Company Age Limit | Must have been trading for less than 3 years | Generally must receive first EIS investment within 7 years of first commercial sale |
| Employee Limit | Fewer than 25 full-time equivalent employees | Fewer than 250 full-time equivalent employees |
| Gross Assets Limit | No more than £350,000 before the share issue | No more than £30 million before the share issue (£35 million after) |
| Order of Use | A company cannot raise SEIS funds after it has already issued shares under EIS | Can be used after SEIS shares have been issued (a company does not need to use its full SEIS allowance first) |
What is Advance Assurance and why do I need it?
Advance Assurance is a formal process where a founder applies to HM Revenue & Customs (HMRC) for a statement confirming that the company and its proposed share issue are likely to meet the qualifying conditions of the schemes. It is not a mandatory step but often critical for investment conversations. Most sophisticated UK investors will not seriously consider an investment until the company has this confirmation, as it gives them confidence they will be able to claim the tax reliefs.
What is the risk-to-capital condition?
This is a crucial and often misunderstood requirement. To qualify for the schemes, HMRC must be happy that the company plans on using the investment for long-term growth and that there is a genuine risk that the investor could lose their money.
This creates a balancing act for founders:
An investor pitch deck emphasises the scale of the opportunity and minimises risk.
The HMRC business plan (for Advance Assurance) must do the opposite: clearly articulate the risks the business faces (e.g., technology development, market penetration) and explain why the investment is essential to overcome them.
If your application presents the venture as a sure thing or a low-risk, asset-backed investment, HMRC could reject your Advance Assurance application. Good luck!