Tax Benefits of Investing in Startups

Investing in a startup company has never been easy. There are potential risks in buying shares in a startup company than in larger or more established companies. However, government provision of tax relief or incentives in the UK mitigates the risk factor of startup investment.

The planning for the UK tax system intends to attract investors in different businesses, where they receive tax relief on meeting the eligible criteria.

Here are a few schemes for investors to make tax benefits on startup investment.

Enterprise Investment Scheme (EIS)

Under EIS, the government offers tax relief to individual investors ready to buy shares in early-stage companies.

Conditions to apply

  •   An individual investor cannot have a direct connection with the company.
  •   The tax relief is applicable only for investments in recently incorporated companies.
  •   The company you’re investing in must have 250 or fewer employees, and its gross asset should be less than £15,000,000 before issuing shares.
  •   Relief will be withdrawn if the investor doesn’t hold the investment for a minimum of three years.
  •       You can claim back money once the business trades for four months or if 70% of the investment is spent.

Benefits for investors

  •   Investors can put up to £1,000,000 investments in EIS shares per year.
  •   Married couples can invest up to £2,000,000 ( £1,000,000 each) in EIS shares per tax year and enjoy significant tax relief.
  •   You can get up to 30% tax relief for a tax year.
  •   If you hold a share for at least three years, any gain will get Capital Gains tax exemption.
  •   There are no minimum investment criteria through EIS in a company for a tax year.

Ask an accounting professional to help you deal with EIS while investing in small companies.

Seed Enterprise Investment Scheme (SEIS)

The structure of a SEIS is quite similar to EIS and focuses on smaller companies that have gross assets up to £200,000 and have less than 25 employees.

An investor can receive 50% income tax relief on investments up to £100,000 per tax year. Their stake in the company cannot be more than 30%.

Investors can claim capital gains tax relief on reinvesting their claim in an eligible SEIS company, irrelevant of the company where they made the profit. They will receive 50% + 14% tax relief. For an investment of £100,000, you will receive tax relief of £64,000.

A company trading for less than two years can qualify for SEIS relief. However, they must not have a previously issued EIS share.

Venture capital trusts relief.

Venture capital trusts (VCTs) invest in small and medium-sized companies. For investment in VCT funds, you can receive an income tax relief of 30% on investments up to £200,000 per tax year.

To receive the tax benefit, you need to hold the shares for at least five years. The dividends paid out on the investments within £200,000 are tax-free, and the sale of the shares enjoys a Capital Gains Tax exemption.

However, your VCT investments cannot be more than 15% in a single company. Look for accounting services to help you understand how to qualify for the tax benefits.

Social Investment Tax Relief (SITR)

Social Investment Tax Relief is a government scheme to support charities and social enterprises. Under the scheme, investors get 30% income tax relief on investments of up to £1 million per year. The investment can be in terms of debt or equity.

Any profit made on selling your investment is CGT free. However, interest or redemption premiums on debt need to pay income tax.

While investing, make sure the company is a qualifying Social Enterprise or registered charity. They must have less than 250 full-time employees and gross assets of not more than £15 million before investment and £16 million immediately after the investment.

You get CGT and income tax exemptions when you reinvest a profit in SEIS company shares. Additionally, you can get a CGT relief of 50% on the investment up to £100,000, which is a maximum of £50,000.

Under the scheme, you cannot hold more than 30% of the company’s loan capital. Also, you cannot invest in a Social Enterprise where you are either a partner or a trustee. However, you can enjoy the text benefit if you are a company director.


The government has a set of rules and regulations which decides whether you are eligible for tax relief and if the company qualifies to offer you such benefits. You can seek professional help to plan your investments, considering the current scenario, government regulations, financial health, and risk-taking abilities.