You have been talking to an angel for six weeks. He likes the product, he has met your co-founder, and he is prepared to put in £60,000. At the end of the third meeting he asks the question that decides whether the conversation continues: is it SEIS?
If you do not know, he will assume the answer is no, because for most British angel investors the tax reliefs are not a bonus on the deal. They are the deal.
The relief is the investor's, the paperwork is yours
The Seed Enterprise Investment Scheme and the Enterprise Investment Scheme give individuals who subscribe for new shares in qualifying unquoted companies a set of reliefs that materially change their downside.
Under SEIS, an investor gets income tax relief at 50% of the amount subscribed. Since 6 April 2023 the annual investor limit has been £200,000 and the amount a company can raise under SEIS is £250,000 over its lifetime, both raised from lower figures. Under EIS, income tax relief is 30%, the annual investor limit is £1m, or £2m where the excess goes into knowledge-intensive companies, and a company can raise up to £5m in a twelve-month period and £12m over its lifetime, with higher ceilings for knowledge-intensive companies.
Both schemes exempt the gain on the shares from Capital Gains Tax if they are held for at least three years and relief was claimed and not withdrawn. Both allow loss relief against income if the company fails, which is the part that really moves angels: the combination of up-front relief and loss relief means a higher-rate taxpayer's genuine exposure on a failed SEIS investment is a fraction of the cheque. SEIS also carries a reinvestment relief that exempts half of a gain reinvested into SEIS shares in the same year.
Figures and limits are set by Finance Acts and are reviewed, so confirm the current position for the tax year of the investment. The EIS scheme's sunset clause was extended by legislation in 2024 to 5 April 2035.
Advance assurance before anybody writes a cheque
HMRC will look at your proposal in advance and give a non-statutory view on whether the shares are likely to qualify. That is advance assurance, handled by the Venture Capital Reliefs team, and in practice it is a precondition of raising from experienced angels. It costs nothing to apply.
The application wants your business plan, your latest accounts if you have any, your articles, details of the shares you propose to issue, a description of how the money will be spent, and, since the rules tightened, the names and contact details of at least one prospective investor. HMRC will not consider speculative applications with no identified investor. Turnaround moves around but assume it is measured in weeks rather than days, and build that into your timetable rather than promising the investor a completion date you cannot control.
Once the shares are issued and you have been trading or carrying out research and development for at least four months, you submit the compliance statement, form SEIS1 or EIS1. HMRC then issues you an authority, and you issue the SEIS3 or EIS3 certificates to the investors, which is what they use to claim on their tax returns. Until those certificates land, your investors have paid money and received nothing they can use, and they will chase you.
Order matters. SEIS shares must be issued before any EIS shares. Issue the EIS round first and you lose the SEIS allowance entirely, which is a genuinely expensive administrative mistake.
The trades that are excluded
A qualifying trade excludes a long list of activities, and the list catches businesses that feel entirely ordinary. Dealing in land, dealing in commodities or shares, banking, insurance and other financial activities, leasing and receiving royalties, legal and accountancy services, property development, farming and market gardening, forestry, running hotels or nursing homes, operating or managing them for someone else, coal and steel production, shipbuilding, and generating or exporting electricity where the generation attracts other subsidies.
Property development and hotels are the ones that surprise founders most often. If a substantial part of your activity falls in an excluded category, the whole issue fails, and substantial is generally read as more than 20%.
There are structural conditions too. The company must be unquoted and have a permanent establishment in the UK. For SEIS it must be less than three years old as a trading company, have gross assets of no more than £350,000 before the investment and fewer than 25 full-time equivalent employees. For EIS the limits are gross assets under £15m before the investment, fewer than 250 employees, and the investment must normally come within seven years of the first commercial sale. The shares must be new, fully paid ordinary shares carrying no preferential rights to dividends or assets and no redemption rights. There must be no arrangement to protect the investor from the ordinary risks of the business, which is what the risk-to-capital condition introduced in 2018 is aimed at.
That last point kills a lot of otherwise sensible term sheets. A liquidation preference is normal venture practice and it is fatal to relief. Your investors will know this. Your template articles downloaded from the internet may not.
Three years of not doing anything clever
The reliefs are withdrawn if certain things happen within three years of the share issue. The investor must not receive value from the company: no loans to them, no unusual payments, no buying an asset from them at a generous price, and care needed even with reasonable director's remuneration in some cases. The company must not repurchase shares from other shareholders. The investor must not become connected with the company by holding more than 30% of the ordinary share capital or by being an employee, although a director can sometimes qualify.
The money itself must be spent on the qualifying trade within a defined period, and spent, not held. And the company must carry on the qualifying trade throughout.
Practically, this means your cap table, your board minutes and your intercompany arrangements need to be tidy for three years after every round. Tell your accountant which shares are SEIS and which are EIS, and keep the certificates. When an investor's relief is withdrawn because of something you did in year two, you will hear about it.
Where this shows up in the game
Business Baron treats outside investment as a change in who you answer to, not a line of free cash. Bringing money in dilutes you, brings a shareholder with expectations and a timetable, and constrains what you can do with the company afterwards. The reliefs available depend on the year you are playing, because these schemes did not always exist, and neither did the rules that police them.