In April 2026, the UK’s tax system is set to undergo an important change. At that point, the rules surrounding inheritance tax (IHT) and the Enterprise Investment Scheme (EIS) will become less attractive to investors.
This is due to a new “cap” coming into force on certain alternative investments which previously qualified for Business Relief (BR). The upcoming change is prompting certain investors to doubt whether EIS is still a viable option for tax-efficient investing.
In this article, we make the case that EIS is still a very worthwhile option for those interested in early-stage investing. The new rules may require certain investors to pivot their tax plan, but that doe not mean throwing the baby out with the bathwater.
What is changing with IHT?
Until recently, an investor’s EIS shares could qualify for Business Relief if certain conditions were met (e.g. if they were held for at least 2 years). As such, EIS investors could “shield” much of their early-stage portfolio from IHT upon death.
However, in its Autumn Statement in October 2024, the Labour government announced that the rules would change on 6 April 2026. At that point, qualifying investments that previously enjoyed Business Relief (or Agricultural Property Relief, APR) would only receive IHT-free treatment up to a total limit of £1m.
Above that threshold, qualifying investments (e.g. EIS shares) could receive 50% IHT relief – i.e. creating an effective IHT rate of 20%.
For instance, suppose an EIS investor died in 2024. They owned a £2m EIS portfolio, with all of the shares held for at least two years. In this case, the portfolio likely would have enjoyed full IHT relief. However, suppose a similar investor dies in late 2026.
In this case, a 20% IHT rate would apply on £1m worth of EIS shares, leading to an IHT bill of £200,000.
Is EIS still worth it?
Undeniably, the UK’s tax system is becoming more punitive and restrictive. In the same Autumn Statement that announced the IHT change (2024), the government immediately changed capital gains tax (CGT), raising the basic and higher rates to 18% and 24%, respectively.
Later, on 6 April 2025, businesses also faced a higher rate for employer National Insurance contributions (NICs), rising from 13.8% to 15%. Meanwhile, personal allowances remain frozen, council taxes have gone up, and there is now talk of the Chancellor possibly lowering the Cash ISA limit (for tax-free interest) from £20,000 to £4,000.
In such conditions, investors must take every opportunity to maximise tax allowances, putting more hard-earned returns back in their pockets. Despite the upcoming changes in Business Relief in April 2026, the Enterprise Investment Scheme is still an area where investors can protect much of their portfolios from the taxman. In particular:
- Full IHT relief will still be available on qualifying assets up to £1m (e.g. EIS shares).
- 30% up-front income tax relief is available on the amount invested. This is up to £1 million per tax year (or £2 million for “knowledge-intensive” companies).
- Capital gains tax (CGT) is not levied on the disposal of EIS shares held for 3 years (provided income tax relief has been given and has not been withdrawn).
- CGT deferral can be used to delay liability on an existing capital gains tax bill to a later year (e.g. gains from the disposal of an additional property).
- Loss relief can still be used to mitigate the negative impact of EIS shares sold for less than their original purchase value.
The importance of planning in 2025
This year could be a pivotal year for tax and investment planning. UK tax revenues are forecast to reach their highest-ever level, and additional pressures on the public finances (e.g. due to US tariffs) make further tax rises in 2025-26 quite plausible.
EIS-qualifying companies are innovative, growth-focused and actively trading. These are the kinds of businesses that the UK needs to keep nurturing to grow its economy. As such, they are likely to continue qualifying for IHT relief even as the BR regime becomes stricter.
Other investments may only qualify for Business Relief (BR), offering a degree of IHT relief. By contrast, EIS packages five reliefs into one investment, making it uniquely versatile from a tax efficiency standpoint.
Despite their appeal, EIS investments do carry risks. It is important to discuss these with your financial adviser to ensure they reflect your goals, needs and risk appetite.
EIS investments are inherently long-term. Most require a minimum 3-year holding period to maintain tax reliefs. However, actual exits can take 5-10 years. Liquidity is limited, and early exits may invalidate reliefs.
Capital loss is possible, although loss relief can cushion the impact. Moreover, not all EIS-qualifying investments are created equal. Due diligence – especially on fund managers’ track records, investment focus and exit histories – is vital.
Invitation
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This article is for informational purposes only and does not constitute investment advice. Your capital is at risk, and the value of investments can go down as well as up. Past performance is not a reliable indicator of future results. The tax treatment of investments depends on individual circumstances and may change. Always seek regulated financial advice before making investment decisions.
