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The UK has established itself as a thriving environment for startups and early-stage businesses, partly due to government-backed investment incentives that make funding more accessible. Two of the most significant schemes are the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), which provide substantial tax advantages to investors while supporting high-growth potential businesses. Tax reliefs are subject to status and change.
As Aled Phillips, Co-Managing Director and Chartered Financial Planner at Niche Private Clients, explained in a recent Angel Insights podcast interview, these schemes offer valuable opportunities for both investors and companies seeking funding, but they come with complexities that require careful consideration.
About Aled Phillips
Aled joined Niche to establish and grow their high net worth offering (Niche Private Clients), specialising in financial planning for high net worth families and entrepreneurs. As Co-Managing Director, he focuses on financial planning for business exits and liquidity events, working closely with professional contacts including tax advisers and solicitors.
Aled holds Chartered Financial Planner status and has passed the PCIAM exam, a globally recognised qualification tailored to advising high net worth individuals. He has been consistently recognised as a "Top 250 Rated UK Financial Adviser" in The Times and The Telegraph guides by VouchedFor from 2017 through to 2024, and is a Fellow of the Personal Finance Society – the highest level of accreditation a financial adviser can achieve.
Niche Private Clients is a multi-award-winning firm that is 100% employee-owned, with all advisers and staff possessing a shareholding in the company. This structure helps ensure high-quality financial advice and exceptional service to clients.
Both SEIS and EIS are government-backed initiatives designed to stimulate private investment in early-stage, higher-risk companies by offering significant tax incentives to investors.
SEIS (Seed Enterprise Investment Scheme) focuses on very early-stage companies, often referred to as seed-stage businesses. Launched in 2012, this scheme has helped over 17,000 companies raise approximately £1.7 billion as of 2021-22 statistics.
EIS (Enterprise Investment Scheme) targets slightly more established businesses that are still in growth phases. Since its introduction in 1994, the EIS has enabled over 36,000 companies to raise approximately £28 billion.
SEIS:
Companies must have been trading for less than three years (increased from two years in 2023)
Gross assets must not exceed £350,000 (increased from £200,000 in 2023)
Must have fewer than 25 employees
Can raise up to £250,000 under SEIS (increased from £150,000 in 2023)
EIS:
Companies can be more established but still growing
Gross assets must not exceed £15 million
Must have fewer than 250 employees
Can raise up to £5 million per year, with a lifetime limit of £12 million
SEIS:
50% income tax relief on investments up to £200,000 per tax year (doubled from £100,000 in 2023)
Capital Gains Tax (CGT) relief on 50% of the amount invested
Tax-free gains if shares are held for at least three years
Loss relief against income tax or capital gains tax
Inheritance tax exemption after two years
EIS:
30% income tax relief on investments up to £1 million per tax year (or £2 million if investing in knowledge-intensive companies)
Capital Gains Tax deferral for the full amount invested
Tax-free gains if shares are held for at least three years
Loss relief against income tax or capital gains tax
Inheritance tax exemption after two years
As Aled emphasised during the podcast, these investments should be viewed as long-term commitments and are not suitable for everyone. Here are the key considerations he highlighted:
"It's very important that people are aware that it could fail completely. That’s why I'm a firm believer that SEIS and EIS investing is not a one-off," Aled stated, emphasising the importance of building a diverse portfolio over time rather than making isolated investments.
Typically, investors should:
Be willing to lock up capital for potentially 7-10+ years
Understand that these are high-risk investments
Have sufficient disposable income and liquid assets elsewhere
Allocate only 5-10% of their net worth to these investments
Be prepared for irregular and unpredictable exits
One critical aspect that Aled highlights is the timing of tax relief. Unlike Venture Capital Trusts (VCTs) where relief is immediate, with SEIS and EIS, investors receive tax certificates only after the funds are deployed into companies, which can take time:
"With a lot of clients on the EIS and SEIS, it's the other tax benefits, the business property relief, the capital gains tax, as well as the income tax [that are important]," Aled explained.
He added that deployment timelines can vary significantly: "Typically, an EIS manager might say we will deploy in anything from zero to 24 24-month period. So, let's look at the worst-case scenario. And as in nothing is deployed... in the first year at all, how would we make provision for that?"
Interestingly, Aled noted that age can be a factor, but it's not the primary consideration:
"You could have a client in their sixties, and you need to have the conversation upfront and say, some of these companies might not be maturing until you are 78 years of age," he explained.
Rather than age, Aled emphasised that financial position and risk tolerance are more important factors. However, he did mention that most of his clients who invest in these schemes tend to be at least in their forties, primarily because they're in a stronger financial position.
Perhaps the most important insight from Aled is the necessity of building a diversified portfolio of SEIS and EIS investments over time:
"I'd seriously question whether or not it was suitable, because it's something that you need to be building up over time and building up your allocation to it. That gives them the greatest chance of success over the longer term."
This aligns with research on early-stage investing that suggests a diversified portfolio of at least 150 companies provides the best chance of capturing the outlier successes that drive overall returns.
When asked about choosing between SEIS and EIS, Aled advised against viewing them as alternatives:
"I really wouldn't think about it as in, should we use one or the other. An EIS would sit alongside an SEIS because of its risk profile."
This makes strategic sense for several reasons:
SEIS offers higher tax relief (50% vs 30%) but with lower investment limits
SEIS targets the earliest-stage companies (higher risk but potentially higher rewards)
EIS allows for larger investments in slightly more established companies
Together, they can create a balanced portfolio across the early-stage spectrum
In 2023, significant enhancements were made to the SEIS scheme, making it even more attractive:
Company lifetime allowance increased from £150,000 to £250,000
Qualifying trading period extended from two to three years
Gross asset limit increased from £200,000 to £350,000
Individual investor annual limit doubled from £100,000 to £200,000
Additionally, the EIS scheme, which was due to end in 2025, has been extended, providing confidence to the investment community.
Practical considerations
Loss relief
Aled highlighted the importance of understanding loss relief: "Typically up to 30 to 40% can fail, and you have the real winners that really drive the performance and return the fund."
For investors, this means that even if companies fail (which is likely for some portion of early-stage investments), the actual financial loss is mitigated through loss relief against income tax or capital gains.
Inheritance tax planning
Both SEIS and EIS investments qualify for Business Property Relief (BPR), making them exempt from inheritance tax after being held for two years. This can be valuable for estate planning, though Aled emphasised the importance of considering whether complex investments are appropriate to leave to beneficiaries.
Impact of ESG and purposeful investing
Aled noted an increasing trend toward ESG (Environmental, Social, and Governance) considerations in SEIS and EIS investing, particularly among younger investors and across generations:
"The importance of ESG, the money doing some good... with EIS because by nature of investing in technology, there's lots of medical science and green technology that is coming from this. And people have a real good, feel-good factor about that."
According to recent HMRC data, both schemes continue to attract significant investment despite economic challenges:
In the 2022-23 tax year, 4,205 companies raised £1.96 billion through EIS, down 15% from the record-breaking previous year
In the same period, 1,815 companies raised £157 million through SEIS
The Information and Communication sector dominated both schemes, accounting for 34% of EIS and 39% of SEIS investments
London and the South East received 65% of all investments across both schemes
The number of investors claiming EIS income tax relief was 40,485 in 2022-23, down from the previous year's record but still showing growth from pre-pandemic levels
SEIS and EIS offer compelling tax incentives that can significantly enhance returns and reduce risk for investors while providing crucial funding for early-stage companies. However, as Aled emphasised throughout his interview, these are complex, long-term, high-risk investments that require careful consideration.
Aled's key advice can be summarised as:
Treat SEIS and EIS as long-term, illiquid investments
Build a diversified portfolio over time rather than making one-off investments
Consider using both schemes as complementary rather than alternatives
Only commit capital you won't need for other purposes
Understand the complexities of the tax benefits and relief options
For investors with sufficient risk tolerance, time horizon, and financial capacity, these schemes offer an opportunity to support innovative businesses while potentially generating significant tax-efficient returns. For entrepreneurs, they provide a powerful tool to attract investment at the critical early stages of business development.
As with any significant investment decision, consulting with a qualified financial advisor who understands these schemes is essential before proceeding.
If you'd like to find out more about Aled Phillips and the team at Niche Private Clients, you can visit https://nichepc.co.uk/. Niche offers specialist, fixed-fee financial planning tailored to high-net-worth individuals and families, with expertise in making long-term plans for clients and future generations.
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