EIS, SEIS and VCT Relief Calculator

Venture capital scheme investments are marketed on their reliefs and understood through their risk, and the two are usually discussed separately. That is a mistake, because the reliefs act directly on the risk — and once the arithmetic is done, the maximum loss on an EIS or SEIS investment is far smaller than the headline "you could lose everything" suggests.

The mechanism is two reliefs compounding. Income tax relief reduces the money actually at stake: £100,000 into EIS at 30% leaves £70,000 at risk from the outset. If the company then fails, share loss relief allows that £70,000 loss to be set against income at the marginal rate, returning £31,500 to a 45% taxpayer. The worst case is a £38,500 loss on £100,000 committed — 38.5%.

On SEIS the arithmetic is more striking still. Fifty per cent income tax relief leaves £50,000 at risk, and loss relief at 45% returns £22,500 of that, capping the loss at £27,500 — barely more than a quarter of the money. For an asset class where total failure is a realistic outcome rather than a tail risk, that transformation is the entire investment case, and it is almost never presented as a computed figure.

The three schemes are routinely grouped together, and VCT is the odd one out in ways that matter more than the shared 30% headline.

It has no share loss relief. VCT shares are exempt from capital gains tax, and the corollary of exemption is that a loss on them is not an allowable loss — there is nothing to set against income. A failed VCT costs the full net investment, where a failed EIS costs a fraction of it. For a like-for-like £100,000 at the 45% rate, that is £70,000 against £38,500.

It also locks the money up for five years rather than three, and offers neither CGT deferral nor reinvestment relief. What it gives in exchange is tax-free dividends, which is a genuinely different proposition: VCT suits an investor wanting sheltered income from a diversified managed portfolio, where EIS and SEIS suit one wanting sheltered growth from concentrated single-company risk. Choosing between them on the 30% figure alone is choosing on the one attribute they share.

Two constraints regularly reduce the relief below the headline percentage, and both are worth checking before committing.

The first is the annual limit: £1,000,000 for EIS, rising to £2,000,000 where the excess goes into knowledge-intensive companies; £200,000 for both SEIS and VCT. Amounts above the limit simply earn no relief. The second is more often binding and less often anticipated: relief cannot exceed the income tax you actually owe. It reduces a liability; it does not create a refund out of nothing. An investor with a £40,000 tax bill putting £200,000 into EIS can use only £40,000 of the £60,000 of relief generated.

The remedy for both is the carry-back election, which treats a subscription as though it had been made in the previous tax year — useful where last year’s liability was larger, or where this year’s limit is already used. It is claimed on the same form as the relief itself and is easy to miss.

Every figure on this page assumes the company qualifies, and keeps qualifying for the whole holding period. That assumption carries more risk than the tax rates do.

The risk-to-capital condition asks whether the company is a genuine growth business rather than a vehicle for capital preservation — introduced precisely to stop schemes built around the reliefs rather than around a trade. The connection rules deny relief to employees, to most directors, and to anyone holding more than 30% of the company. And relief is withdrawn if the shares are sold, or the company ceases to qualify, within three years — five for VCT.

The practical protections are advance assurance from HMRC before the investment, and the EIS3 or SEIS3 certificate afterwards, without which no relief can be claimed at all. Neither is a guarantee that the reliefs survive; both are the minimum evidence that they were available in the first place. An investment sized on this page’s downside figure should also be sized on the assumption that the paperwork holds.