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What is EIS? A Guide For Advisors & Investors
The Enterprise Investment Scheme (EIS) has been one of the UK’s main incentives for early-stage investment since 1994. It offers qualifying investors a package of tax reliefs in return for backing smaller, higher-risk companies. For the right investor, those reliefs can materially change the risk and return profile of an early-stage portfolio.
The reliefs are only half the equation, though. Whether an EIS investment creates value depends on the quality of the underlying companies and the discipline of the manager selecting and supporting them. This guide covers how EIS works, the reforms that took effect in April 2026, the risks investors should understand, and why EverQuest believes Deep MakeTech is a strong fit for EIS capital.
How EIS works
EIS gives investors tax reliefs when they subscribe for new shares in qualifying unquoted companies, either directly or through a managed fund. Subject to the rules and each investor’s circumstances, there are five principal reliefs.
Income tax relief. 30% relief on up to £1 million invested per tax year, or up to £2 million where the amount above £1 million goes into knowledge intensive companies. The investor needs enough income tax liability to use the relief, and the shares must generally be held for at least three years or the relief may be withdrawn.
Capital gains tax exemption. Gains on qualifying EIS shares are generally free of capital gains tax, provided income tax relief was claimed and not withdrawn.
Loss relief. If shares are disposed of at a loss, the loss net of income tax relief can be set against income or capital gains.
Capital gains tax deferral. A gain on any asset can be deferred by investing an equal amount in EIS shares between one year before and three years after the gain arises. The gain is postponed, not cancelled.
Inheritance tax relief. EIS shares may qualify for Business Relief once held for two years. From 6 April 2026, 100% relief applies to the first £2.5 million of combined business and agricultural property, with 50% relief above that. (HMRC)
What changed in April 2026
The Autumn 2025 Budget made the most significant changes to EIS in over a decade. For shares issued on or after 6 April 2026: (DWF, Budget 2025: Venture Capital Implications)
Before 6 April 2026 | After 6 April 2026 | |
|---|---|---|
Annual company limit | £5 million | £10 million |
Annual limit, knowledge intensive companies | £10 million | £20 million |
Lifetime companies limit | £12 million | £24 million |
Lifetime limit, knowledge intensive companies | £20 million | £40 million |
Gross assets, before and after limits | £15 million and £16 million | £30 million and £35 million |
The higher limits let EIS investors follow on as companies grow. Under the old rules, a successful company could exhaust its EIS headroom after two or three rounds, or outgrow the gross assets test as it invested in equipment and facilities.
The Budget also cut upfront income tax relief on new Venture Capital Trust (VCT) subscriptions from 30% to 20%, while leaving EIS relief at 30%. The scheme itself is legislated to run for shares issued before 6 April 2035, giving advisers a long planning horizon.
A worked example
Consider an additional rate taxpayer investing £50,000 in a qualifying EIS company.
Illustration | Amount |
|---|---|
Amount invested | £50,000 |
Income tax relief at 30% | £15,000 |
Effective cost | £35,000 |
Loss relief at 45% if the company fails | Up to £15,750 |
Maximum net capital at risk | Approximately £19,250 |
If the investment succeeds and the conditions are met, any gain is generally free of capital gains tax. The figures will differ for each investor, depending on their tax rate, which reliefs they claim and how those reliefs interact with the rest of their tax position. This illustration ignores fees and charges and is based on tax rules at 6 April 2026.
The point is structural: the Government shares part of the downside, while qualifying gains are treated favourably. That does not make EIS low risk. The reliefs exist to compensate investors for backing companies that are more likely to fail than established businesses.
An investment first, a tax strategy second
Tax relief cannot turn a weak company into a good investment. The outcome of an EIS portfolio depends on whether its companies can build valuable products, defend their market positions, scale and ultimately exit. The higher risks of early-stage investing make manager selection more important, not less, and advisers should assess an EIS manager as rigorously as any other. Six questions are worth asking.
Track record. Has the team realised venture or EIS investments before, and how have completed portfolios performed? Check whether figures relate to the manager’s own funds or the team’s previous roles.
Sector expertise. Can the team show genuine expertise in the sectors it backs? In technology-intensive businesses, technical diligence matters as much as commercial diligence.
Deal origination. Where do opportunities come from? Partnerships with universities, research organisations or industry can be a useful quality signal.
Portfolio construction. How many companies will a portfolio hold, how is it diversified by sector, stage and technology risk, and how long will it take to invest?
Exit discipline and support. Does the manager plan potential exit routes before investing, and what support do companies receive afterwards?
Fees, alignment and reporting. What are the initial, annual and performance fees, including any charged to investee companies? Does the team invest alongside its investors, and how transparent is its reporting?
Why Deep MakeTech
EverQuest invests in what we call Deep MakeTech: businesses that combine advanced science and engineering with the ability to make or deliver physical products at commercial scale. The category spans advanced materials, industrial biotechnology, robotics, semiconductors, energy technologies and next-generation manufacturing processes. These companies differ from software businesses in ways that matter to investors.
They are harder to copy. Their advantages typically rest on patents, process know-how and years of development. A software feature can often be replicated in months; a proprietary manufacturing process or novel material cannot. Technical differentiation does not guarantee commercial success, but where it is genuine it can be durable.
Their timelines suit patient capital. Validation, scale-up, customer qualification and, in some sectors, regulatory approval take years. EIS is designed to attract investors willing to commit over a multi-year horizon.
They fill a real funding gap. The UK produces world-class science but has a weaker record of turning it into scaled companies. Businesses moving from prototype to production are often too early or too technical for growth investors, yet too capital-hungry for many seed investors.
The April 2026 reforms suit them. Building pilot lines and plants adds to a company’s balance sheet quickly, so capital-intensive businesses were among the most likely to outgrow the old limits. The higher thresholds let them stay eligible for EIS through their most demanding stages.
They have multiple routes to exit. Established industrial companies often acquire technology, IP, teams or manufacturing capability well before a business reaches maturity.
Investor interest is growing, but from a modest base. UK investment in advanced manufacturing rose 49% in 2025, the fastest of the Industrial Strategy sectors, albeit from a relatively small starting point.
The same characteristics create real execution risk. Physical products need more capital than software, manufacturing has to work reliably at scale, and customers can take a long time to adopt new technology. That is why specialist technical and commercial expertise matters so much in this category.
Risk, an honest assessment
EIS investments should form only part of a diversified portfolio, and investors should be prepared to lose some or all of the capital they invest in any individual company. The principal risks are as follows.
Company risk. Early-stage businesses often have limited revenue, short track records and evolving business models, and many will not reach scale.
Technology risk. A technology that works in the laboratory may fail at production scale.
Commercial risk. Technical excellence does not guarantee that customers will adopt a product or pay for it.
Concentration and dilution risk. Portfolios often hold a small number of companies. Capital-intensive businesses usually need several funding rounds, and investors who do not take part in later rounds will be diluted.
Liquidity and exit risk. The shares are unquoted, with no ready market, and exits may take longer than expected or not happen at all.
Tax risk. Reliefs depend on both the company and the investor meeting ongoing conditions, and tax rules can change.
EIS is suitable only for investors with enough UK income tax liability to use the reliefs, who can accept illiquidity over several years, and for whom losing the capital invested would not cause financial hardship. Suitability assessment by a qualified adviser is essential.
Conclusion
EIS offers some of the most significant tax incentives available for early-stage investment in the UK, and the April 2026 reforms have made it more flexible than at any point in its history. Those incentives complement rigorous investment selection; they do not replace it. The right question is not “what relief can I claim?” but “what am I investing in, and why should it create value?”
For EverQuest, the answer is Deep MakeTech: UK science and engineering with the potential to reach global industrial markets, backed by specialist technical expertise, disciplined selection, diversification and active support.
Explore the EverQuest EIS Fund
Discover EverQuest's approach to investing in Deep MakeTech through the Enterprise Investment Scheme.
Explore the Fund