A tax efficient scheme introduced to encourage equity investment in new and small companies. The EIS has been available for investments since 1994.

Taxpayers can benefit from unlimited deferral relief from capital gains tax (CGT) where gains (including gains on shares) are reinvested in newly issued eligible shares (section 150C and Schedule 5B, Taxation of Chargeable Gains Act 1992) within the period beginning one year before and ending three years after a gain is realised. The gain is then postponed and becomes chargeable only on the occurrence of one of several specified events (such as the disposal of the EIS shares or the shares ceasing to be eligible EIS shares).

Taxpayers are also entitled to relief from income tax on investment in EIS shares. The income tax deduction is given at the rate of 30% on the amount invested, up to a maximum annual investment of £1 million (from 6 April 2012), provided that the shares are held for at least 3 years. For shares issued on or after 6 April 2018, the annual investment limit is £2 million, provided that anything above £1 million is invested in on or more knowledge-intensive companies. If income tax relief is granted and the EIS shares held for 3 years, the disposal is exempt from CGT.

A company's shares will be eligible for the EIS if it is an unquoted trading company and meets various other conditions. Special provisions (including specific investment limits) apply to knowledge intensive companies. For more on EIS requirements and the definition of knowledge-intensive company, see Practice note, Enterprise Investment Scheme (EIS).