For high earners looking for ways to put capital to work while managing a tax bill, two names come up repeatedly: the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs). Both exist to channel private money into small, growing UK companies, and both offer tax reliefs to investors who accept the risk of doing so. In April 2026 the rules changed. The income tax relief on VCT investments fell from 30% to 20%, while the limits on how much the companies themselves can raise went up.
This guide explains how the schemes work, what changed and what it means in practice, and what to weigh before treating a tax relief as a reason to invest. It is analysis of published government guidance, not a recommendation to buy anything.
In short
- EIS: 30% income tax relief on up to £1 million a year (£2 million if at least £1 million goes into knowledge-intensive companies). Shares must be held for at least three years.
- SEIS: 50% income tax relief on up to £200,000 a year, aimed at very early-stage companies. Also a three-year holding period.
- VCT: 20% income tax relief on up to £200,000 a year from 6 April 2026, down from 30%. Shares must be held for five years. Dividends are tax-free.
- Company limits rose from 6 April 2026, so more scaling businesses can qualify for funding.
- These are higher-risk investments. Tax relief reduces the cost of a loss; it does not remove the risk of one.
Why do these schemes exist?
Young companies are difficult to fund. They are risky, their shares are hard to sell, and many fail. Governments have long used tax incentives to encourage investors to back them anyway. The venture capital schemes do this by offering relief on the money you put in, relief on gains, and in some cases relief if the investment goes wrong.
The government’s stated aim in the latest changes was to “increase the real-terms generosity of the schemes” while balancing the level of relief and encouraging higher-return investments. In plain terms, it wanted the schemes to work better for companies that are scaling, while rebalancing the relief offered to VCT investors.
How the Enterprise Investment Scheme works
EIS is a direct route. You subscribe for new shares in a qualifying company, usually through a fund or an adviser-arranged portfolio, and receive tax relief on the cost.
According to GOV.UK, the main EIS features are:
- Income tax relief of 30% of the amount invested.
- An annual limit of £1 million, rising to £2 million if at least £1 million of that is invested in knowledge-intensive companies.
- A minimum holding period of three years to retain the full relief.
- Capital gains tax deferral relief. Gains from selling other assets can be deferred if you reinvest in qualifying companies within one calendar year before, or three calendar years after, the sale.
- A capital gains tax exemption on gains from the EIS shares themselves, if you held them for the minimum period and received income tax relief that has not been withdrawn.
- Loss relief. If the shares are sold at a loss, or become worthless, the loss can be set against income in the year of sale or the previous year, “less any Income Tax relief already given.”
The conditions are strict. You must be a UK taxpayer, because relief is claimed “against the amount of Income Tax you need to pay in the UK.” You cannot hold more than 30% of the company’s shares or voting rights, including through associates. And the shares must be newly issued and fully paid in cash.
An illustration
Suppose you invest £50,000 in qualifying EIS shares and have enough UK income tax to set the relief against. At 30%, the relief is £15,000, so the net cost before any other reliefs is £35,000. If the company fails completely, loss relief may reduce the cost further, but you could still lose most of your money. If it succeeds, any gain may be free of capital gains tax if the conditions are met. That is an illustration of the mechanics, not a prediction about any investment.
What about SEIS?
The Seed Enterprise Investment Scheme is the smaller, earlier-stage sibling of EIS. GOV.UK sets the income tax relief at 50% of the investment, with an annual limit of £200,000, and a minimum holding period of three years. It is aimed at very young companies, which tend to carry the highest risk of all. The higher rate of relief reflects that.
How Venture Capital Trusts work
A VCT is different from EIS. Instead of buying shares in one company, you buy shares in an investment company, usually listed on the stock market, that itself invests in a portfolio of small qualifying businesses. That spreads the risk across several holdings. The tax treatment is similar in spirit but not identical.
According to GOV.UK:
- Income tax relief is now 20% of the amount invested, with an annual limit of £200,000.
- The holding period is five years. You must keep the investment for five years to retain the relief.
- VCT dividends are tax-free. GOV.UK says you do not need to pay income tax on dividends from a VCT.
- Relief is claimable only against UK income tax you need to pay, so the amount of relief you can use depends on your tax liability.
What changed in April 2026
The change that matters most to investors is the VCT relief rate. GOV.UK confirms that for individual VCT investors the income tax relief was reduced from 30% to 20%, effective 6 April 2026. The announcement was published on 26 November 2025.
The arithmetic shows the effect. On a £50,000 VCT investment, relief at 30% would have been £15,000. At 20% it is £10,000. At the £200,000 annual maximum, relief falls from £60,000 to £40,000. These are illustrations that assume the investor has enough tax to claim against. The practical result is that the net cost of a VCT investment is higher than it used to be, which makes the underlying quality of the fund matter more.
What changed for the companies
The changes were not all about trimming. From 6 April 2026, the limits that apply to the companies receiving EIS and VCT money increased. GOV.UK sets them out as follows:
| Limit | Standard companies | Knowledge-intensive companies |
|---|---|---|
| Annual amount a company can raise | £10 million (previously £5 million) | £20 million (previously £10 million) |
| Lifetime amount a company can raise | £24 million (previously £12 million) | £40 million (previously £20 million) |
The gross assets test, the cap on the size of a company before it raises money, also doubled. The company’s gross assets must not exceed £30 million before the share issue (previously £15 million) and £35 million immediately afterwards (previously £16 million).
There is an exception. The increases do not apply to companies registered in Northern Ireland that trade in goods or in the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity. Those companies keep the previous limits.
The government estimates the fiscal impact of the package at £65 million in 2027/28, reducing to £45 million by 2029-31. The direction of travel is clear: the schemes are being steered towards larger, later-stage growth companies, which in theory can absorb more capital and build bigger businesses.
EIS or VCT: how do they compare?
| EIS | VCT | |
|---|---|---|
| Income tax relief | 30% | 20% (from 6 April 2026) |
| Annual investor limit | £1m (£2m for knowledge-intensive) | £200,000 |
| Minimum holding period | 3 years | 5 years |
| Structure | Shares in individual companies | Shares in a listed fund holding a portfolio |
| Dividends | Not covered by a dividend exemption in the GOV.UK summary | Tax-free |
The table reflects only the headline points GOV.UK sets out and is not exhaustive: each scheme also has its own rules on capital gains and losses, so read the full guidance before relying on any of this. Which route suits an investor depends on appetite for concentration, how long they can lock money away, and their tax position. For many, the question is less “which is better?” than “which fits what I can afford to lose and leave untouched?”
The risks tax relief does not remove
This is the part that deserves the most weight. HMRC’s own guidance is explicit that its description of the schemes “should not be read as a general endorsement by HMRC or an indication of potential investment performance,” and that “investors should conduct their own due diligence before making an investment.”
A few practical points follow:
- Small companies fail. Tax relief reduces the cost of a failure, but it does not prevent it. You can lose most or all of what you invest.
- Liquidity is limited. Holding periods of three or five years are minimums, not guarantees that you can sell when you want. Shares in small companies can be hard to sell at any price.
- Relief can be withdrawn. Selling before the minimum holding period can undo the tax benefits.
- Charges matter. Fund and adviser fees reduce returns, so compare them as carefully as you compare the headline relief.
- Concentration risk. An EIS investment in one company is a very different bet from a diversified portfolio.
This is also where the broader context matters. Our look at why private markets are becoming more accessible explores how more investors are reaching assets that were once reserved for institutions, and why access is not the same as suitability. And our analysis of how Britain’s investors are behaving in a higher-rate world shows why the return on safer assets shapes how much risk people are willing to take for a tax break.
How relief is actually claimed
The process is simpler than the rules suggest. According to GOV.UK, you receive a compliance certificate (EIS3 for the Enterprise Investment Scheme, SEIS3 for the Seed scheme) from the company. You then use that certificate to claim the relief, either through an adjustment to your tax code or on your Self Assessment tax return. Keep the certificate safe: it is your evidence.
Questions to ask before investing
- What is the realistic worst-case outcome, and could I afford it?
- How long will my money be locked up, and what is the likely exit route?
- What fees will I pay, and how are they charged?
- Does the investment make sense without the tax relief?
- How concentrated would my overall portfolio become?
- Do I have enough UK income tax liability to use the relief?
Frequently asked questions
Did the EIS income tax relief change in April 2026?
According to GOV.UK, the EIS income tax relief remains 30%. The change that took effect on 6 April 2026 was a cut in VCT income tax relief from 30% to 20%, along with higher limits for the companies receiving investment.
How long do I have to hold VCT shares?
Five years, to retain the income tax relief. For EIS and SEIS, the minimum holding period is three years.
Are VCT dividends taxable?
GOV.UK says you do not need to pay income tax on dividends from a Venture Capital Trust.
Do I need to be a UK taxpayer?
Yes. Relief is claimed against the income tax you need to pay in the UK, so you need a UK tax liability to benefit.
The bottom line
The April 2026 changes make VCTs less generous to investors and make the schemes more generous to the companies they fund. For EIS the relief is unchanged, but it still comes with a high risk of loss and rigid conditions. The sensible way to think about these schemes is as high-risk investments that happen to come with tax incentives, not tax planning tools that happen to involve investing. If you are considering them, a regulated financial adviser can assess your circumstances.
This article is general analysis of published government guidance and is not personal advice or a recommendation. Tax rules and reliefs can change, and their effect depends on your circumstances. All investment carries risk, including the risk of loss. Consider advice from a professional authorised to give regulated financial advice.
Sources: GOV.UK — Tax relief for investors using venture capital schemes; GOV.UK — Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) changes.
