Will Clark, Head of Business Development in
Published 17 December 2025 · Updated 8 June 2026
Enterprise Investment Schemes, known as EIS, and Venture Capital Trusts, known as VCTs, offer valuable tax incentives for clients investing in smaller UK companies. Both allow investors to claim income tax relief, while EIS also provides capital gains tax deferral and loss relief, and VCTs offer tax-free dividends and capital gains exemptions on exit, subject to conditions.
These schemes give clients exposure to high-growth, unlisted companies that are typically less correlated with the stock market. This creates opportunities to diversify a portfolio and access UK innovation, particularly for clients looking beyond traditional pensions and ISAs.
They also carry significant risks. These are long-term, illiquid investments in small businesses. The entire investment may be lost, and both compliance and timing need to be carefully managed. This guide reflects HMRC guidance and legislation in force as at 8 June 2026.
Important notice
The terms, rules and tax reliefs described in this article are based on current legislation and HMRC guidance but are subject to change. The value of tax benefits depends on individual circumstances. Investors should always consult a qualified independent financial adviser if unsure about suitability before investing.
Key highlights
Income tax relief
EIS offers 30% income tax relief. VCT offers 20% income tax relief. Subject to conditions.
EIS reliefs
EIS can provide capital gains deferral, CGT exemption on disposal, loss relief and potential Business Relief.
VCT reliefs
VCTs offer tax-free dividends and tax-free gains on disposal, subject to the rules.
Risk
Both schemes invest in smaller companies. They are high-risk, long-term and illiquid investments.
EIS and VCT allow investors to access high-growth, unlisted companies that are typically less correlated with public markets. This can create opportunities to diversify a portfolio and tap into UK innovation, particularly for clients looking beyond traditional pensions and ISAs.
That said, they carry significant risks. These are long-term, illiquid investments in small businesses. The entire investment may be lost, and both compliance and timing must be carefully managed. When used appropriately, the benefits can outweigh the risks for eligible clients.
EIS and VCT at a glance for investors
EIS and VCT are both UK venture capital schemes, but they work differently. EIS is usually a direct investment into qualifying companies. VCT investors buy shares in a listed investment company, which then invests into a portfolio of qualifying businesses.
EIS
Direct investment into qualifying companies
Investors subscribe for shares in qualifying companies, usually directly or through an EIS fund or nominee. EIS is commonly used for income tax relief, CGT deferral, loss relief and estate planning.
VCT
Listed investment company portfolio
Investors subscribe for shares in a listed VCT. The VCT invests into a managed portfolio of qualifying companies. VCTs are commonly used for income tax relief and tax-free dividends.
What is the Enterprise Investment Scheme?
The Enterprise Investment Scheme was introduced in 1994 to stimulate investment into early-stage British companies. Investors commit capital to unlisted businesses that meet qualifying criteria, including company size, trade, use of funds and risk-to-capital requirements.
EIS-qualifying companies are generally unquoted, although AIM-listed companies are permitted. They must have a permanent establishment in the UK, carry on a qualifying trade, meet the relevant gross assets and employee limits, and satisfy the risk-to-capital condition.
| EIS company condition | Current position for most companies |
|---|---|
| Employees | Generally fewer than 250 employees, or fewer than 500 for knowledge-intensive companies. |
| Gross assets before investment | No more than £30 million before investment for most companies. |
| Lifetime risk finance limit | £24 million for most companies, or £40 million for knowledge-intensive companies. |
| Trade | The company must carry on a qualifying business. Excluded activities include, for example, property development, some financial activities and certain investment activities. |
In return, investors benefit from a range of tax reliefs:
Income tax relief
30% income tax relief, claimable against income tax for the year of investment or carried back one tax year.
Capital gains deferral
Capital gains tax liabilities can be deferred if the gain is reinvested into EIS-qualifying shares.
Exemption on disposal
Gains realised on qualifying EIS investments are exempt from CGT if the required conditions are met.
Loss relief
If the company fails, investors can offset qualifying losses against income or capital gains.
EIS can also be relevant for estate planning. After two years, qualifying EIS shares can qualify for Business Relief, subject to the rules in force and continued qualifying conditions.
There are strict holding requirements. Shares must be kept for at least three years to retain tax benefits. EIS investments in unquoted companies have no regular secondary market, and exits usually depend on acquisitions, IPOs or other liquidity events, which can take years or may never materialise. Investors need to manage documentation, particularly the EIS3 certificates required to claim relief.
Useful sources: HMRC EIS income tax relief helpsheet and HMRC EIS capital gains tax helpsheet.
What is a Venture Capital Trust?
Venture Capital Trusts were launched in 1995 and are publicly listed investment vehicles. By subscribing for new VCT shares, investors gain exposure to a professionally managed portfolio of early-stage and growth-stage businesses.
VCT investors receive 20% income tax relief on investments of up to £200,000 per tax year from 6 April 2026, provided shares are held for five years. Income tax relief applies to eligible subscriptions for new VCT shares, not secondary-market purchases.
Income tax relief
20% income tax relief on eligible new VCT share subscriptions from 6 April 2026.
Tax-free dividends
Dividends from VCTs are tax-free, subject to the rules.
Tax-free gains
Any capital gains from selling qualifying VCT shares are exempt from tax, subject to the rules.
Portfolio exposure
A VCT gives exposure to a managed portfolio rather than a single company investment.
The main appeal for many clients is the tax-free dividend stream, which is generated as companies in the portfolio mature and are exited. Dividends are not guaranteed and depend on portfolio performance, realisations and the VCT’s dividend policy.
Although VCTs are traded on the London Stock Exchange, liquidity is typically low. Shares often trade at a discount to net asset value and may be difficult to sell without affecting price. In practice, VCTs should be viewed as long-term investments.
Another consideration is availability. Most VCTs only raise new funds during specific periods, often linked to the tax year. Offers can close early if fully subscribed, so advisers must monitor availability closely. Like EIS, the underlying companies are high risk and unquoted, and portfolio performance can be volatile.
VCTs do not qualify for Business Relief.
Useful sources: HMRC VCT dividend exemption guidance and HMRC VCT capital gains tax helpsheet.
EIS vs VCT comparison
EIS and VCT are complementary, but they are not interchangeable. The table below summarises the main investor-facing differences.
| Feature | EIS | VCT |
|---|---|---|
| Investment route | Shares in qualifying companies. | Shares in a listed VCT that invests in qualifying companies. |
| Income tax relief | 30%, subject to conditions. | 20% from 6 April 2026, subject to conditions. |
| Annual subscription eligible for relief | Up to £1m, or £2m where at least £1m is invested in knowledge-intensive companies. | Up to £200,000. |
| Minimum holding period for income tax relief | Three years. | Five years. |
| Capital gains deferral | Yes. | No. |
| Tax-free gains on disposal | Yes, subject to the EIS conditions. | Yes, subject to the VCT rules. |
| Loss relief | Yes. | No. |
| Dividends | Taxable at standard dividend tax rates. | Tax-free, subject to the rules. |
| Business Relief | Qualifying EIS shares can qualify for Business Relief after two years, subject to conditions. | No. |
| Liquidity | Illiquid. Exits depend on company sale, IPO or another liquidity event. | Listed, but liquidity can be limited and shares may trade at a discount to net asset value. |
Useful sources: GOV.UK tax relief for investors using venture capital schemes, HMRC EIS overview and HMRC VCT overview.
Why use these schemes in client portfolios?
Tax efficiency
Both schemes offer income tax relief, which can improve the net return for eligible clients. EIS can also provide CGT deferral and loss relief, while VCTs can provide tax-free dividends.
Diversification and growth access
EIS and VCT portfolios typically include fast-growing businesses in sectors such as fintech, health tech, clean energy, software and business services.
Low correlation
These investments are unquoted and depend on company-specific outcomes, so they can have lower correlation with public equities and bonds.
Estate planning
EIS investments can qualify for Business Relief after a two-year holding period, subject to the rules and continued qualifying conditions.
Tax efficiency
Both schemes offer generous income tax relief, which improves the net return for clients. Investing £100,000 could reduce a client’s tax bill by £30,000 for EIS or £20,000 for VCTs, subject to conditions. In the case of VCTs, tax-free dividends can provide a potential source of dividend income, especially for those in higher tax brackets.
Diversification and growth access
EIS and VCT portfolios typically include fast-growing businesses in sectors such as fintech, health tech and clean energy, areas that are often underrepresented in traditional portfolios. These investments provide access to early-stage and growth-stage companies that would otherwise be difficult for retail investors to reach.
Origination also plays a key role. Not all EIS and VCT managers have access to the same deal flow. Strong origination capabilities, along with ongoing support to investee companies, can significantly affect performance. This is often a key differentiator between fund managers and should be part of an adviser’s due diligence process.
Low correlation with traditional assets
Since these investments are unquoted and depend on company-specific factors rather than broader market trends, they can provide low correlation to public equities and bonds. Including a small allocation of EIS or VCT in a diversified portfolio may improve risk-adjusted returns.
Estate planning benefits
EIS investments can qualify for Business Relief after a two-year holding period, subject to the rules and continued qualifying conditions. This can make EIS a potentially useful estate planning tool for clients with taxable estates and a tolerance for higher investment risk.
Who are these investments suitable for?
These schemes are designed for clients who are comfortable with high-risk, long-term investments. They are typically considered only after a client’s broader financial planning position, liquidity needs and risk tolerance have been assessed.
| May be suitable for clients such as... | Not appropriate for clients such as... |
|---|---|
| High earners seeking additional tax relief beyond pensions and ISAs. | Clients needing short-term liquidity. |
| Clients with significant one-off capital gains seeking to defer or mitigate tax. | Clients with low income tax liabilities. |
| Retirees building tax-free income streams through VCT dividends. | Clients unwilling or unable to accept the risk of capital loss. |
| Individuals with large estates planning to mitigate inheritance tax through EIS. | Clients seeking low-risk, capital-secure or income-guaranteed investments. |
Strategic use cases for financial advisers
EIS and VCT can be complementary. Financial advisers and their clients often consider the schemes in different planning situations, depending on the individual's tax position, risk profile and liquidity needs.
High-income tax planning
A senior executive with a significant bonus may be looking to reduce their tax bill and diversify their portfolio. Investing in a VCT provides immediate tax relief and long-term exposure to early-stage businesses, alongside potential tax-free dividend income.
Capital gains deferral
Clients who realise a large capital gain, such as from a property sale, can use EIS to defer that gain and reduce their income tax bill. This is particularly helpful where the client does not need immediate liquidity and is open to long-term venture-style investment.
Rolling VCT strategy
By investing in a VCT each tax year, clients can build a ladder of potential tax-free dividend payments and income tax relief. After the five-year holding period, they may be able to sell earlier VCTs and reinvest into new offers, creating a rolling cycle of relief and income.
Inheritance tax planning
For older clients concerned with passing on wealth to future generations, EIS can be used to reduce inheritance tax exposure. If held for two years and until death, qualifying EIS shares can qualify for Business Relief, subject to the rules.
Market trends and outlook
Fundraising slowed in the 2023/24 tax year, with Enterprise Investment Scheme totals falling by 20% and Venture Capital Trusts raising 17% less than the year before. This reflected broader market uncertainty and rising interest rates. However, these headwinds also created opportunities, with entry valuations for underlying investments becoming more attractive.
A major positive development is the extension of both schemes by the UK government until at least April 2035. This long-term policy certainty gives advisers greater confidence to incorporate these investments into ongoing client strategies.
The broader tax environment has also made these schemes more relevant. Reductions in capital gains exemptions, dividend allowances and potential inheritance tax reform all make tax-advantaged investing more attractive.
Valuations in the venture space have moderated from pandemic-era highs. For example, software company revenue multiples have fallen from 13.5× to closer to 6.7× according to SaaS Capital data. While this has affected the near-term performance of some portfolios, it also offers more sensible entry points for new investors.
Risks and considerations
Key risks
Investors should consider capital loss, illiquidity, valuation uncertainty, concentration risk, charges, delays in tax documentation, changes to tax rules, withdrawal of reliefs and the possibility that exits take longer than expected or do not occur.
Both schemes carry a real risk of capital loss. The businesses involved are often young and unproven. Liquidity is a major issue: EIS shares cannot easily be sold, and VCTs, though listed, may have limited buyers.
There are strict holding periods: three years for EIS and five years for VCT. Selling early, if possible, usually means losing the associated tax reliefs. Clients must understand this and have sufficient liquidity elsewhere.
Changes in government policy or investor eligibility can affect the tax advantages. Both the investor and the company must continue to meet qualifying criteria. If qualifying conditions are breached, the investor may lose reliefs or be required to repay them.
From an adviser’s perspective, there is also an increased compliance burden. Documentation such as EIS3 certificates can be delayed, and suitability assessments must be clearly documented given the higher-risk nature of these investments.
Guinness EIS and Guinness VCT
At Guinness Ventures, we have backed over 200 growth-stage businesses across the UK, deploying more than £340 million into selected companies. Our focus is on Series A-ready businesses with strong management, proven product-market fit and clear scaling potential.
We adopt a selective approach, backing only a fraction of the companies we meet, and aim to build diversified portfolios across sectors where the UK leads globally, including software, consumer, health tech and business services.
Recent market conditions have created more attractive entry points, particularly following post-COVID valuation resets. With the extension of EIS and VCT to 2035 and wider tax changes affecting CGT, Business Relief and pension allowances, many clients are reassessing estate and tax planning. EIS and VCT remain powerful tools within that toolkit, and our approach is designed to help advisers and clients access their full potential.
Guinness EIS
Direct EIS portfolio exposure
Our EIS service targets diversified portfolios of qualifying scale-up companies across a range of sectors.
Guinness VCT
Listed VCT exposure
Guinness VCT Plc is a generalist VCT seeking to invest in a diversified portfolio of UK scale-up companies.
Frequently asked questions
Specific questions investors and advisers often ask when considering EIS and VCT investments.
Reference list
- HMRC, Tax relief for investors using venture capital schemes.
- HMRC, Enterprise Investment Scheme overview.
- HMRC, Venture Capital Trusts overview.
- HMRC, Enterprise Investment Scheme income tax relief helpsheet.
- HMRC, Enterprise Investment Scheme and Capital Gains Tax helpsheet.
- HMRC, Venture Capital Trusts and Capital Gains Tax helpsheet.
- GOV.UK, VCT and EIS investment limit increase and restructure.
- SaaS Capital, The SaaS Capital Index. Data as of 31 August. Accessed 30 September 2025.