Advanced Taxation (UK) · Capital gains tax: the use of exemptions and reliefs in deferring and minimising tax liabilities

EIS and SEIS Deferral Relief for Capital Gains Tax

Updated 11 October 2026

EIS deferral relief lets you postpone a chargeable gain by investing the gain in new qualifying EIS shares. The gain is not taxed until a later event, such as selling the shares. To solve a question, check the timing window, deduct the amount reinvested, tax the remaining gain after the annual exempt amount, and note the income tax relief too.

Understand Reinvestment Reliefs: EIS and SEIS Deferral

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) encourage individuals to back small, higher-risk trading companies. The state pays for this with tax reliefs. In ATX you meet these reliefs in three places: income tax relief on the investment, capital gains relief, and relief if the shares are lost.

EIS deferral relief is the main CGT relief. You make a chargeable gain on any asset. You then subscribe for new EIS shares. The amount you invest can be deducted from the gain, so tax on that part is deferred. The gain is not exempt. It is held over and comes back into charge on a later event.

The usual timing window is from 1 year before to 3 years after the date the gain arose. You can defer all or part of a gain and choose how much. The investor must subscribe in cash for new shares in a qualifying company. The detailed conditions, such as residence and whether the company qualifies, are tested through the facts in the question. Read them carefully and state any assumption you make.

Income tax relief on EIS is a tax reducer of 30% of the amount invested, limited to your income tax liability. The shares must be held for at least 3 years or the relief is withdrawn. SEIS is a similar scheme for very small, early-stage companies, with its own lower investment limits. It also gives its own income tax and CGT reliefs. The SEIS rates and limits are not in the tax tables, so use the figures given in the question.

The cap on income tax reliefs limits some reliefs that are deducted from income, such as trading loss relief against general income. The cap is the higher of £50,000 or 25% of income, unless otherwise restricted. The 30% EIS reducer is not an income deduction, so it does not fall within the cap. Share loss relief against income for losses on unquoted trading company shares (including EIS and SEIS shares) is one of the reliefs outside the cap.

Key rules to remember

EIS deferral window: Gain arises from 1 year before to 3 years after the EIS share issue; Gain deferred = lower of the amount invested and the gain. You can claim less than the maximum if useful.
Gain left in charge: Chargeable gain after deferral = Gain − Amount deferred; Then deduct the annual exempt amount of £3,000 and apply 18% or 24% according to unused basic rate band.
EIS income tax relief: Tax reducer = 30% × Amount subscribed (limited to income tax liability); Relief is withdrawn if the shares are disposed of within 3 years. It is a reducer, not a deduction from income.
SEIS income tax relief: Tax reducer = SEIS rate given in the question × Amount subscribed (limited to income tax liability); SEIS has a lower annual investment limit than EIS. The SEIS rate and limit are not in the tax tables, so use the figures in the question.
SEIS CGT relief: Relief = SEIS rate given in the question × Gain reinvested in SEIS shares; The rate, the relevant tax year and the limits are not in the tax tables. Use the terms given in the question.
Cap on income tax reliefs: Cap = higher of £50,000 and 25% × income; From Table 12 of the tax tables. Applies to capped reliefs only, such as trading loss relief against general income, unless otherwise restricted. Share loss relief on unquoted trading company shares is outside the cap.
CGT rates and exempt amount: 18% lower rate; 24% higher rate; annual exempt amount £3,000; The lower rate applies to the extent the gain falls in unused basic rate band of £37,700 for income tax.
Loss on EIS shares: Allowable loss = Cost − EIS income tax relief not withdrawn − Proceeds; The EIS income tax relief is 30% of the cost. The loss can be relieved against income, which is not subject to the cap, or treated as a capital loss.

How to solve Reinvestment Reliefs: EIS and SEIS Deferral questions

Use this order for any EIS or SEIS question. It keeps the CGT, income tax and loss relief points apart so you collect marks for each.

1Identify the investor, the gain or income, and the tax year. Check UK residence.
2Compute the chargeable gain before relief, then check that the EIS share issue falls within the window: 1 year before to 3 years after the gain.
3Decide the amount to defer. It is the lower of the gain and the amount invested. Consider whether deferring all of it is best.
4Deduct the amount deferred, then the annual exempt amount of £3,000. Tax the rest at 18% or 24% using the unused basic rate band.
5Compute income tax relief: 30% for EIS as a tax reducer, limited to the income tax liability (for SEIS, use the rate given in the question). State the 3-year holding condition.
6If the shares were sold at a loss, compute the loss as cost less the EIS income tax relief not withdrawn less proceeds. It can be relieved against income, and this relief is outside the cap on income tax reliefs, or it can be treated as a capital loss. Apply the cap (the higher of £50,000 and 25% of income) only to other capped reliefs.
7State when the deferred gain comes back into charge: disposal of the shares, the investor ceasing UK residence, or the shares ceasing to qualify. Add a short recommendation.

Quickest way: Four-line EIS check

When to use it: Use when a Section A or Section B question gives a gain and an investment amount and asks for the tax effect.

Window check: gain within 1 year before or 3 years after issue?
Deferral = lower of gain and amount invested.
Remaining gain less £3,000, then 18% on gain within the unused basic rate band and 24% above it.
Add 30% income tax reducer (EIS) and note the three-year holding. If shares are sold at a loss, the loss relief against income is outside the cap.

Common mistakes in Reinvestment Reliefs: EIS and SEIS Deferral

Treating deferred gains as exempt.
Students mix up deferral with the SEIS reinvestment relief or with a permanent exemption.
Fix: Say the gain is held over and charged later. SEIS reinvestment relief works differently, and the question will give its terms.
Applying the cap to the 30% EIS income tax relief or to share loss relief.
Both topics appear in the same income tax section, so the cap seems to apply.
Fix: The EIS relief is a tax reducer, so the cap does not apply. Share loss relief against income on unquoted trading company shares is also outside the cap. The cap applies to other income deductions, such as trading loss relief against general income.
Using the wrong rate on the remaining gain.
Students forget to use the unused basic rate band and apply 24% to everything.
Fix: Compute taxable income first. Gain in unused basic rate band is at 18%, the balance at 24%.
Ignoring the timing window.
Students assume any reinvestment qualifies.
Fix: Always compare the dates. The shares must be issued from 1 year before to 3 years after the gain.
Forgetting the clawback events.
Answers stop at the saving in the year.
Fix: Add one line on when the gain returns: sale of the shares, loss of UK residence or the shares losing qualifying status. Mention loss of income tax relief if sold within 3 years.
Deferring the whole gain when the annual exempt amount would be wasted.
Students defer by default.
Fix: If you defer the whole gain, no gain remains in charge, so the £3,000 annual exempt amount is wasted. It can only be set against a gain that remains chargeable. Defer only the gain above £3,000 (or less) so the exempt amount is used, and state this reason in your answer.

Worked examples

Example 1

In 2025/26 Nadia sells quoted shares and makes a chargeable gain of £120,000. Three months later she subscribes £80,000 for new shares that qualify for EIS deferral relief. Her taxable income (after the personal allowance) is £30,000, all non-savings and non-dividend income, with no other gains. Compute her CGT for 2025/26 with and without the claim, and state her EIS income tax relief.

Show the solution

The EIS issue is within 3 years after the gain, so the window is met.
Amount deferred = lower of £120,000 and £80,000 = £80,000.
Gain after deferral = £120,000 − £80,000 = £40,000. Less the annual exempt amount of £3,000 = £37,000.
Unused basic rate band = £37,700 − £30,000 = £7,700. CGT = £7,700 × 18% = £1,386.
Balance £37,000 − £7,700 = £29,300 × 24% = £7,032. Total CGT with claim = £8,418.
Without the claim: £120,000 − £3,000 = £117,000. £7,700 × 18% = £1,386. £109,300 × 24% = £26,232. Total = £27,618.
Saving now = £27,618 − £8,418 = £19,200, which is £80,000 × 24%. The £80,000 gain is charged later when a clawback event occurs.
EIS income tax reducer before the limit = 30% × £80,000 = £24,000. Nadia's income tax liability = £30,000 × 20% = £6,000, so the reducer is limited to £6,000.

Answer: CGT with the claim is £8,418, against £27,618 without it. The £19,200 saving is a deferral, not an exemption. Nadia's EIS income tax reducer would be 30% of £80,000 = £24,000, but it is limited to her income tax liability of £6,000 (£30,000 × 20%). Her actual income tax relief is therefore £6,000, provided she holds the shares for at least 3 years.

Example 2

In 2025/26 Omar has salary income of £120,000 and subscribes £100,000 for EIS shares. Compute his income tax after EIS relief. Separately, he sold other EIS shares for £10,000 after holding them for more than 3 years. They cost £100,000, and the EIS income tax relief of £30,000 was never withdrawn. Compute the allowable loss and state how much can be relieved against his income of £120,000, and whether the cap applies.

Show the solution

Adjusted net income of £120,000 is above £100,000, so the personal allowance is reduced by £1 for each £2 of excess: (£120,000 − £100,000) ÷ 2 = £10,000. Personal allowance = £12,570 − £10,000 = £2,570.
Taxable income = £120,000 − £2,570 = £117,430.
Tax: £37,700 × 20% = £7,540. £117,430 − £37,700 = £79,730 × 40% = £31,892. Total = £39,432.
EIS relief = 30% × £100,000 = £30,000. This is a tax reducer, so it is not an income deduction and the cap does not apply to it. Liability exceeds £30,000, so the relief is fully used.
Income tax payable = £39,432 − £30,000 = £9,432.
Loss on the other EIS shares = cost £100,000 − EIS income tax relief not withdrawn £30,000 − proceeds £10,000 = £60,000.
Share loss relief against income for unquoted trading company shares is outside the cap on income tax reliefs. Omar's income of £120,000 exceeds the loss of £60,000, so the whole £60,000 can be set against his income if he chooses this instead of treating it as a capital loss.

Answer: Omar's income tax after EIS relief is £9,432. His allowable loss on the other EIS shares is £60,000. The whole loss can be relieved against income because share loss relief is not subject to the cap.

Exam tips

Show the timing check with dates. Examiners reward the window being applied to the scenario.
Keep the three effects separate in your answer: CGT deferral, income tax reducer, and loss relief on shares (which is outside the cap).
Use the tax tables for the CGT rates, the £3,000 annual exempt amount and the cap. Do not quote them from memory.
Finish with a short recommendation: how much to defer, the clawback events, the 3-year holding period and the investment risk. This earns professional skills marks.
State your assumption if the question does not confirm that the company qualifies. Do not assume without saying so.

Practice questions from Capital gains tax: the use of exemptions and reliefs in deferring and minimising tax liabilities

Reinvestment Reliefs: EIS and SEIS Deferral: frequently asked questions

What is EIS deferral relief?

It lets an individual postpone a chargeable gain by subscribing for new EIS shares. The gain deferred is the lower of the gain and the amount invested. It becomes chargeable again on a later event, such as sale of the shares.

Does the cap on income tax reliefs apply to EIS relief?

No. The 30% EIS relief is a tax reducer, not a deduction from income. The cap, the higher of £50,000 and 25% of income, applies to capped income deductions such as trading loss relief against general income. Share loss relief on unquoted trading company shares is also outside the cap.

Is the deferred gain ever exempt?

Not under EIS deferral. The gain is held over and charged later. SEIS has its own CGT relief for gains reinvested in SEIS shares. Its rate and limits are not in the tax tables, so the question will give them.

When does a deferred gain come back into charge?

The usual events are disposal of the EIS shares, the investor ceasing to be UK resident, or the shares ceasing to qualify. The gain is then taxed at the rates for the year the event occurs.