Entrepreneurs, investors and their advisers are making their representations in response to the government’s call for evidence on tax support for entrepreneurs (see consultation here). The consultation was opened on the day of the 2025 Autumn Budget Statement and closes on the 28 February 2026. The government has made some initial changes intended to expand the incentives on offer and, at least in the case of the VCT regime, direct the focus of investors toward the EIS scheme. These changes are effective from 6 April 2026 and in this article, we consider their impact.
Enterprise Investment Scheme (EIS)
EIS is to undergo significant expansion which will allow larger, high-growth companies with an emphasis on scaling up to access investment under the EIS regime. For qualifying companies, the gross assets threshold will double to £30 million pre-investment and £35 million post-investment, significantly widening the range of eligible businesses. Additionally, fundraising limits are to double: the annual investment limit for standard companies will rise to £10 million (up from £5 million), while the lifetime limit will increase to £24 million (up from £12 million). Knowledge-Intensive Companies (KICs) (broadly, companies which have an innovation angle to their trade and meet certain criteria regarding R&D expenditure, the creation of intellectual property, or a highly skilled workforce) will see even greater increases, with their annual limit rising to £20 million and their lifetime cap reaching £40 million. One can see how businesses with a tech or AI element (and which may be more capital intensive before a return can be generated) can greatly benefit from this increased scope helping them avoid the eligibility cliff edge for longer. For entrepreneurs, this provides greater scalability and may also lead companies to raise larger sums more quickly, though the EIS requirements on what those sums can be used for (and the timeframe for doing so) remain unchanged.
For individual investors, the core tax benefits of the EIS (including 30% income tax relief, capital gains tax exemptions on qualifying exits, and loss relief) remain unchanged (in contrast to VCTs – see below). However, investors should note that from 6 April, the treatment of EIS (and SEIS) shares for Inheritance Tax (IHT) will change; while they remain eligible for Business Relief (formerly business property relief), the 100% relief will be capped at a combined £2.5m per individual across all qualifying assets, with any value exceeding this cap subject to a 50% relief rate (an effective IHT rate of 20%).
The number of investors claiming EIS tax relief in an income tax return in 2023-24 was just over 35,000 (slightly down from the 2022-23 figure). With the greater pool of potential investee companies from April, it is hoped that this will increase going forwards, in particular as tax advantages for more traditional investment strategies such as cash savings, ISAs and pensions are becoming less apparent.
Venture Capital Trusts (VCTs)
VCTs will undergo a structural shift whereby the up-front income tax relief rate for individual investors on their subscriptions will be reduced from 30% to 20%. The other core benefits like tax-free dividends and capital gains tax exemptions remain unchanged. But the lower up-front relief is expected to notably alter the risk-reward profile for taxpayers and angel investors, for example those who may feel that the lower income tax relief mitigates against having VCT investments in their portfolio. It may well be that EIS investments pick up the slack given their income tax relief rate and their wider applicability from April 2026. Indeed, the government’s rationale for the change is that VCTs are entitled to dividend relief whereas investors under the EIS regime are not and therefore this change is a rebalancing of the VCT relief. It remains to be seen how this will impact VCT and EIS investing noting that there may be further changes to the reliefs following the closing of the consultation.
The Seed Enterprise Investment Scheme (SEIS)
Under SEIS, companies trading in the UK may raise up to £250k in furtherance of their operations, while investors may invest up to £200k per year and claim income tax relief on up to half of their investment (amongst other tax reliefs).
While no substantive changes to SEIS will occur from 6 April 2026, the increased limits for EIS may position SEIS more conclusively as a precursor for an up-and-coming UK company on its investment journey, while for investors with a greater appetite for risk, the income tax relief of 50% for SEIS investments versus 20% for VCT ones may prove tempting.
A reminder about Investors’ Relief and Business Asset Disposal Relief
These reliefs reduce the rate of capital gains tax on disposals related to shares to 18% (up from 14% pre-April 2026). This change is also effective from 6 April 2026. The Investors’ Relief relates to shares which an investor (who is not also an employee or director) has held for three years. Business Asset Disposal Relief applies to shares held by an employee or officer of a company and there is the additional cap of £1m in proceeds to which the relief can be applied.
Michelmores are experienced in advising entrepreneurs and investors in raising finance, seed rounds and scaling up. We can assist in navigating the changes to the investment incentives and readying companies to use these reliefs to their advantage. Please contact Anthony Reeves, Cathy Bryant or Hollie Halston, if you have any queries on the above or corporate tax issues generally.
