SEIS/EIS Investor Requirements Explained (2025 Edition)

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are twin pillars of the UK’s venture capital relief programme. While founders often focus on meeting company conditions, the schemes are designed to reward individuals who put capital at risk. 

This guide centres on the investor’s side. It explains SEIS investor eligibility, EIS investor rules and the broader SEIS/EIS investor requirements. It also highlights how SEIS investor rules in 2025 differ from EIS investor eligibility 2025 and shows the exact steps to claim the generous tax reliefs. You will learn who qualifies, what conditions apply, how long you need to hold the shares and what happens if you break a rule. 

Who Qualifies as an SEIS/EIS Investor?

Before looking at tax relief, HMRC first asks a simple question: is the investor genuinely independent from the company and taking real risk?

Investor Eligibility Overview

Both SEIS and EIS are open only to individuals. Corporate bodies cannot claim relief. To qualify, the person must subscribe for new shares in an unquoted company and bear genuine risk. HMRC’s guidance defines when relief will be denied: if the investor or their associates are employed by the company or hold more than 30% of its shares or voting rights. Associates include parents, grandparents, children, grandchildren, spouses, civil partners, business partners and certain trustees. Brothers and sisters are not associates for SEIS.

The schemes do not require the investor to live in the UK, but they must have a UK income tax liability to use the relief. Foreign investors can participate; they simply need a UK tax bill large enough to absorb the relief. Undo Capital has a separate guide on how to prepare your startup for investment.

Applying Tax Relief: Key Conditions

To benefit from SEIS/EIS tax relief, the investor must:

1. Make a qualifying subscription. The investment must be in full‑risk ordinary shares issued by a company that meets the scheme’s company conditions. Shares must be paid for in cash and be newly issued.
2. Hold the shares for at least three years. Selling the shares, receiving value from the company or becoming connected within this period can claw back relief.
3. Submit a claim. After the company files its SEIS1 or EIS1 and receives authorisation, it issues SEIS3 or EIS3 certificates to investors. These certificates contain a unique investment reference number. The investor can then claim relief via a Self‑Assessment tax return. HMRC’s help sheet HS341 notes that investors must complete the “Other tax reliefs” section, quoting the certificate and amount invested.
4. Stay within annual limits. Under SEIS, individuals can invest up to £200k per tax year (increased from £ 100k in 2023), with income tax relief at 50 %. Under EIS, investors can invest up to £1 m per tax year, or £2 m if at least £1 m is invested in knowledge‑intensive companies. Relief is at 30% of the amount invested.

Complying with these conditions ensures that SEIS investor eligibility and EIS investor rules are met from the start.  

SEIS Investor Eligibility Requirements (2025)

For SEIS, HMRC applies stricter investor tests than under EIS, with independence and risk-taking examined in detail from day one.

Independence From the Company

SEIS investor rules 2025 put independence at the heart of the relief. HMRC’s Venture Capital Schemes Manual states that an investor cannot have a “substantial interest” in the company at any time from incorporation to the termination date. A substantial interest is defined as directly or indirectly holding more than 30% of ordinary share capital, voting rights or rights on winding up. Shareholdings of associates count towards this 30% threshold.

Employment is also restricted. Neither the investor nor their associates may be an employee of the company or its qualifying subsidiary during the relevant period (called period B). Directors are treated differently; SEIS allows a director to invest and still claim relief. This flexibility is one reason SEIS attracts angels who want a board seat. However, the director must not, alone or with associates, control 20 % or more of the ordinary share capital.

Financial and Holding Requirements

SEIS shares must be full‑risk ordinary shares that are not redeemable and carry no special rights to assets. Dividends may have limited preferential rights, but they cannot accumulate or vary. There must be no arrangements to guarantee the investment or protect the investor from risk. Guarantees, reciprocal investment agreements or schemes to sell the shares after the investment period disqualify the relief.

Investors must hold SEIS shares for at least three years. HMRC’s investor guidance makes clear that if you sell some or all of the shares, if the company stops qualifying, or if you become connected during this period, tax relief is withdrawn. The holding period typically runs from the date the shares are issued. 

SEIS Investor Tax Relief Conditions

SEIS offers one of the most generous tax benefits in the UK. Investors receive 50 % income tax relief on investments up to £ 200k. They can also reclaim capital gains tax on up to 50% of other gains reinvested in SEIS, known as reinvestment relief. If the company fails, investors may claim loss relief: the loss (net of income tax relief) can be set against income or capital gains. The PIE tax guide notes that any gain on SEIS shares held for at least three years is free of capital gains. These benefits make SEIS attractive but hinge on observing the independence, share and holding conditions described above.

To illustrate, suppose you invest £50,000 in a qualifying SEIS company. You receive a £25,000 reduction in your income tax bill. If the company succeeds and you sell the shares after three years for £120,000, the £70,000 gain is tax‑free. If the company fails and your shares become worthless, your net loss is £25,000 (£50,000 investment minus £25,000 tax relief). If you are a 45% taxpayer, loss relief could save £11,250, leaving a total net loss of £13,750. This example shows how SEIS reduces downside risk while leaving upside uncapped.

EIS Investor Rules (2025)

EIS applies the same core principles as SEIS, but with wider investment limits, stricter employment rules, and narrower allowances for directors.

Key Eligibility Differences

EIS investor eligibility 2025 mirrors many SEIS rules but with notable differences. The connection tests are similar: an individual is connected with a company if they (alone or with associates) possess or are entitled to acquire more than 30% of the ordinary share capital, issued share capital or voting power. Employment is restricted; investors or associates must not be employees of the company for two years before the share issue and for the three‑year qualifying period. However, EIS generally bars paid directors from claiming relief. Only unpaid directors, or directors receiving “permitted payments” for reimbursement of expenses, interest on loans, commercial rent or goods supplied at market value, can qualify. The business angel exemption allows a person to become a paid director after investing if they were not previously connected.

Investment limits differ, too. Under standard EIS, individuals can invest up to £1 m per tax year and claim 30% income tax relief. The limit rises to £2 m if at least £1 m goes into knowledge‑intensive companies. These companies must meet HMRC’s R&D and innovation criteria; the Undo Capital guide explains that they must spend at least 10–15% of operating costs on R&D and employ highly skilled staff.

EIS Investor Restrictions

EIS investors face additional restrictions beyond the 30% rule. HMRC’s investor guidance states that you cannot claim income tax relief if you or your associates are connected through employment or hold more than 30% of shares, voting rights or rights to assets. The restriction applies for two years before the share issue and continues for at least three years afterwards. Directors cannot be paid unless they qualify under the business angel exception.

Investors must also avoid receiving “value” from the company during the qualifying period. Value includes benefits, fees, preferential dividends, loans or repayment of loans not on commercial terms. Receiving value from the company can reduce or extinguish the tax relief. Linked loans are prohibited: the investor and associates cannot receive a loan from the company for two years before or after the share issue. HMRC also bars reciprocal investments where two companies invest in each other to qualify for relief.

Tax Relief Conditions

EIS provides 30% income tax relief, capital gains tax deferral and loss relief. The HS341 helpsheet explains that investors can defer a capital gain by reinvesting it into EIS shares; the deferred gain is brought back into charge when the EIS shares are sold. Gains on EIS shares held for at least three years are exempt from capital gains tax. Loss relief is available if the shares are sold at a loss; investors can set the loss against income or capital gains. EIS shares must be new, full‑risk ordinary shares with no preferential rights. There must be no arrangements to guarantee the investment or to sell the shares.

For example, an investor subscribing £200,000 in an EIS‑qualifying company receives £60,000 in income tax relief. If they roll a previous £200,000 capital gain into the EIS, the gain is deferred until they sell the EIS shares. Should the investment double to £400,000 after three years, the £200,000 gain on the EIS shares is tax‑free. If the company fails, a higher‑rate taxpayer could offset the net loss against income, reducing the cost of failure.

Connected Person Rules (SEIS/EIS): What Investors Must Know

EIS connected person rules are where most investors unintentionally lose relief, often without realising they were connected at all.

What is a Connected Person?

HMRC defines a person as connected with a company if they, alone or with associates, hold more than 30% of the ordinary shares, issued share capital, voting rights or assets on a winding up. Associates include spouses or civil partners, parents, grandparents, children, grandchildren, and business partners. The rights of associates are aggregated when testing the 30% threshold. Brothers and sisters are not associates for SEIS but are treated as associates for EIS when they act together to secure control.

When are Directors Allowed to Invest?

SEIS investor eligibility allows a director to invest and still claim relief. The manual clarifies that neither the investor nor their associates may be employees, but a director is not regarded as an employee. For EIS, the rules are tighter. Paid directors are generally connected and cannot claim relief. The business angel exemption lets an investor become a paid director after subscribing if their only connection is being a director and if they had no prior involvement with the company’s trade. Unpaid directors can qualify if they receive only permitted payments (expense reimbursements, interest on loans, commercial rent or modest dividends).

What Constitutes Control or Influence?

Control is more than share ownership. HMRC states that a person is connected if they are entitled to acquire shares or exercise voting power via options, warrants or rights conferred by agreements. For example, if an investor holds options that allow them to acquire additional shares later, these rights count towards the 30% connection test. Control can also arise when people act together to secure control, even if none individually exceeds 30%. Undo Capital’s cap‑table management tools calculate these entitlements to ensure investors remain below the threshold.

Share Requirements for SEIS/EIS Investors

SEIS and EIS relief depends as much on the type of shares issued as on who the investor is.

Ordinary Shares Only

Both schemes require full‑risk ordinary shares. Shares must be paid for in cash when issued and must not be redeemable. They may carry limited preferential rights to dividends, but dividends must not accumulate or vary. Preference shares, convertible shares and shares with liquidation preference or anti‑dilution protection are disqualified. Companies often create a separate class of ordinary shares for SEIS/EIS investors to avoid giving rights that breach the schemes’ terms.

No Pre‑Arranged Exit

The schemes prohibit arrangements to guarantee an exit. HMRC guidance warns that there must be no agreement to sell the shares during or at the end of the investment period. Investors and companies cannot agree to buy each other’s shares, nor can they structure activities to let one investor benefit at another’s expense. Any hint of a put option or guaranteed buy‑back disqualifies relief. Undo Capital’s deal templates exclude such clauses by default.

No Guarantees, No Protection Mechanisms

To meet the risk‑to‑capital condition, the investment must genuinely expose the investor to loss. HMRC will not approve share issues if arrangements protect the investor’s money by prioritising their exit or transferring risk to other investors. Protection can be disguised, such as through preferential dividends, loans that repay early, or cross‑investment pacts. These mechanisms breach SEIS/EIS share conditions. Companies must therefore avoid any terms that shield the investor from risk. Undo Capital’s automated document generation ensures share agreements remain compliant with these rules.

Holding Period Requirements for Investors

The three-year clock is not a formality. It is the period HMRC uses to test whether the investment stayed “full risk” in practice.

3‑Year Holding Period Explained

Both SEIS and EIS require investors to keep their shares for at least three years to retain full relief. The qualifying period begins on the date the shares are issued (or the date the company begins trading, if later). Investors who sell shares, give them away, or otherwise dispose of them before three years lose the tax relief proportionately. For EIS, the investor must also not have been connected with the company during the two years before the share issue. Undo Capital’s dashboards track these timelines for each investor.

What Happens if Shares are Sold Early?

If an investor sells SEIS/EIS shares before the three‑year period ends, the income tax relief must be repaid. Any capital gain becomes taxable, and any deferred gain (for EIS) crystallises at the sale date. The loss relief may be restricted. Similarly, if the company ceases to qualify, for example, by growing beyond asset or employee limits or engaging in excluded activities, investors may have relief withdrawn. Investors should monitor company compliance and avoid triggering events.

Events Triggering Loss of Relief

HMRC lists specific events that cause the loss of relief:

• Selling or gifting any of the qualifying shares within three years.
• The company fails to meet SEIS/EIS criteria (size, trade, independence).
• The investor becomes connected with the company (e.g. by taking a job or buying more shares that push them over the 30% threshold).
• Receiving money or assets from the company or unusually high interest on a loan.

Undo Capital’s compliance monitoring sends alerts if these events occur, allowing investors to act quickly, often by disposing of non‑qualifying shares or repaying benefits to preserve relief.

Tax Relief Claim Process for Investors

Tax relief is not automatic. Investors only receive SEIS or EIS relief if the claim is made correctly and within HMRC’s strict process and deadlines.

How SEIS/EIS Certificates Work (SEIS3/EIS3)?

After the company issues shares, it must file a compliance statement (SEIS1 or EIS1) once it has either traded for four months or spent 70% of the funds. HMRC reviews the statement and, if satisfied, sends the company an authorisation letter and SEIS3/EIS3 certificates. Each certificate carries a unique investment reference number and details of the investment. Only investors listed on the compliance statement receive certificates. SEIS/EIS investor tax position depends on keeping these certificates safe; they are not automatically submitted with the tax return, but may be requested by HMRC as evidence.

Self‑Assessment Process

The investor claims relief via their Self‑Assessment tax return. HMRC’s help sheet HS341 instructs investors to enter the amount subscribed on the “Other tax reliefs” section of the additional information pages and provide the unique investment reference. Investors must specify the date of the share issue and the company’s name. Relief can be claimed for the current year or carried back one year. For EIS, relief can also be carried forward if the individual does not have enough tax liability in one year, subject to the overall £1 m/£2 m limit. SEIS relief cannot be carried forward, but can be carried back one year.

Claim Deadlines and Evidence

Claims must be made within five years of 31 January following the tax year in which the investment was made. For example, if you subscribed for EIS shares on 1 May 2025, you have until 31 January 2031 to claim. Keep the SEIS3/EIS3 certificates, share certificates and any correspondence from HMRC. If relief is carried back to the previous tax year, note this on the return. Undo Capital’s investor dashboards provide digital copies of certificates and remind investors before deadlines.

Common Mistakes Investors Make and How to Avoid Them

Investing under SEIS/EIS is attractive, but the rules are unforgiving. Common mistakes include:

• Investing before the company has advance assurance. Many investors assume the company qualifies, invest early and later find the company’s trade or structure disqualifies it. Always ask for a copy of the HMRC advance assurance letter or use Undo Capital’s platform, which ties the assurance to the round.
• Receiving non‑qualifying shares. Preference shares, redeemable shares or shares with liquidation preference will cost investors their relief. Ensure the share class is ordinary, non‑redeemable and without special rights.
• Becoming connected without realising. If you or your relatives buy more shares later, provide loans or take a paid role, you may cross the 30% threshold. Consolidate holdings across all classes and associates.
• Missing the holding period. Selling shares, even inadvertently via a share reorganisation or merger, within three years revokes relief. Check with advisors before any corporate actions.
• Issuing SEIS and EIS shares on the same day. The schemes require sequencing: SEIS shares must be issued before EIS shares and at least one day apart. Issuing both on the same day forces investors to withdraw from one scheme.
  
  
• Investing through loans or discounted convertible notes. Loans, even if convertible into equity later, do not qualify for SEIS/EIS relief. Advanced Subscription Agreements can qualify if they are pure equity and follow HMRC guidelines.

Learning from these mistakes helps maintain SEIS investor eligibility and EIS investor rules across the investment lifecycle.

How Startups Should Prepare for SEIS/EIS Investors?

Although this guide focuses on investors, founders must prepare the ground. A clean cap table without prior preference shares, an up‑to‑date Articles of Association, and clear minutes and resolutions are essential. Provide investors with advance assurance, the completed SEIS1/EIS1 forms, the SH01 filing and share certificates. 

If using a blended round, issue SEIS shares first and wait at least one day before issuing EIS shares. Avoid clauses in shareholders’ agreements that guarantee exits or protect particular investors. Undo Capital automates share issuance, ensures documentation aligns with HMRC guidance and creates a data room where investors can review documents.

Founders should also be transparent about the use of funds. HMRC’s risk‑to‑capital condition requires the company to intend to grow and develop its trade and not simply preserve capital. Investors need comfort that their money will be used on qualifying activities within the required time (three years for SEIS and two years for EIS). Providing a clear business plan and forecast satisfies both HMRC and investor expectations.

How Does Undo Capital Help Ensure Investor Compliance?

Undo Capital has built a platform specifically for SEIS/EIS rounds. Its eligibility triage checks age, assets, employees and trade against the rules. Round architecture tools help founders plan how to allocate SEIS and EIS slices, sequence share issues and communicate the differences to investors.

For investors, Undo Capital manages onboarding, collects Know‑Your‑Investor information, issues digital share certificates and tracks each individual’s SEIS/EIS investor tax position. Dashboards show when the three‑year holding period expires and flag events that might jeopardise relief. Because all documents are generated from HMRC‑compliant templates, investors can trust that their SEIS investor rules 2025 and EIS investor eligibility 2025 are respected. In short, Undo Capital automates the heavy lifting so investors can focus on supporting innovative companies.