Short answer
If you dispose of EIS shares at a loss, the loss — reduced by any income tax relief you kept — can be set against your income in the year of disposal or the previous year, or against capital gains. This can reduce your net loss, but you will still lose a substantial part of what you invested.
How the allowable loss is calculated
The loss is the amount you paid for the shares, minus the income tax relief you received and kept, minus anything you received on disposal.
Worked example
| Step | Amount |
|---|---|
| Amount invested | £10,000 |
| Less income tax relief at 30% | −£3,000 |
| Effective cost / allowable loss if shares become worthless | £7,000 |
| Loss relief against income at 45% | £3,150 |
| Net loss after both reliefs | £3,850 |
Illustration only, assuming an additional-rate taxpayer with sufficient income. A basic-rate taxpayer would receive less loss relief.
Setting the loss against income or gains
- Against income: claim to set the loss against total income of the tax year of disposal, the previous year, or both. This is often the more valuable option for higher earners.
- Against gains: otherwise the loss is a capital loss, set against gains of the same year or carried forward.
The general cap on certain income tax reliefs (the greater of £50,000 or 25% of adjusted total income) does not apply to share loss relief on shares that qualified for EIS income tax relief. Check current HMRC guidance or take advice on your position.
When can loss relief be claimed?
You need a disposal, such as a sale or the company being wound up. If shares become of negligible value without being sold, you can make a 'negligible value claim' to treat them as disposed of.
Time limits
A claim to set a loss against income must be made by the first anniversary of 31 January following the tax year in which the loss arose.
Frequently asked questions
Does loss relief mean EIS is low risk?+
No. Even with both reliefs, a failed investment usually results in a substantial loss of the money invested.
Do I need to have held the shares for three years?+
No. Loss relief can apply to a disposal at any time, although a disposal within three years may also lead to income tax relief being withdrawn.
Sources
- GOV.UK — Venture capital schemes: tax relief for investors
- GOV.UK — Enterprise Investment Scheme and Capital Gains Tax (HS297)
- HMRC internal manual — Venture Capital Schemes Manual
Tax rules can change. The information on this website is general information only and is not personal financial, investment, tax or legal advice. It does not take account of your individual circumstances. See our editorial policy.
Interested in EIS investing?
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Capital at risk. EIS investments are high risk and illiquid. Tax reliefs depend on individual circumstances and qualifying conditions.