EIS and Inheritance Tax: 100% BPR After 2 Years
Enterprise Investment Scheme shares in qualifying unquoted trading companies attract 100% Business Property Relief under s105 IHTA 1984 after a two-year holding period — removing them entirely from your taxable estate. SEIS qualifies on the same basis. VCT shares do not qualify for BPR at all.
IHT Relief by Investment Vehicle — 2026
| Vehicle | BPR available | Notes |
|---|---|---|
| EIS shares | 100% after 2 years | Must be qualifying unquoted trading company shares throughout. Reinvestment restarts the 2-year clock. |
| SEIS shares | 100% after 2 years | Same BPR rules as EIS. Annual limit £200,000. Often smaller, earlier-stage companies. |
| AIM shares | 50% from April 2026 (was 100%) | AIM treated as unquoted for BPR. October 2024 Budget cut relief to 50% — effective IHT rate of 20% on death. |
| VCT shares | None | VCTs are listed on the main LSE — quoted securities. BPR does not apply. Excellent income tax and CGT benefits but no IHT relief. |
| Main-market quoted shares | None | Listed on a recognised stock exchange — outside s105 IHTA 1984 entirely. Full IHT at 40%. |
How s105 IHTA 1984 Applies to EIS Shares
Section 105(1)(b) IHTA 1984 provides 100% Business Property Relief for shares in unquoted companies. EIS companies are by definition unquoted — they must not be listed on a recognised stock exchange as a condition of EIS status. Once you have held qualifying EIS shares for at least two years, the value of those shares is reduced by 100% for IHT purposes and effectively removed from your taxable estate.
The relief is automatic in the sense that no election is required — but the personal representatives must claim it on the IHT return by establishing: (1) that the shares qualified as BPR-eligible business property throughout the two-year period; and (2) that the company was carrying on a qualifying trade (not an excluded activity such as investment, property dealing, or financial services) at the date of death.
The two-year clock runs from the date of share issue, not from the date on which the EIS3 certificate confirming EIS status is issued. The EIS3 certificate may arrive months after the shares are issued — but the BPR two-year period starts at the earlier date.
April 2026 BPR Cap: Does It Affect EIS Investors?
For most EIS investors, the £2.5m cap will not bite. The EIS annual subscription limit is £1 million per year (or £2 million if at least £1 million is in knowledge-intensive companies). Building an EIS portfolio above £2.5 million requires sustained maximum investment over several years.
However, investors who also hold qualifying business property — a family business, agricultural land, or AIM shares — must aggregate all BPR/APR assets when measuring against the £2.5m threshold. In a high-value mixed estate, careful sequencing of which assets take priority within the cap can significantly affect the overall IHT exposure.
Frequently Asked Questions
Do EIS shares qualify for Business Property Relief and remove IHT from my estate?
Yes — provided you have held the EIS shares for at least two years and they remain qualifying shares at the date of death. EIS shares are shares in unquoted trading companies, which fall within s105(1)(b) IHTA 1984 and attract 100% Business Property Relief. The effect is that the value of the EIS shareholding is reduced to nil for IHT purposes — the shares are effectively removed from your taxable estate. The same rule applies to SEIS shares. The relief is claimed on the IHT400 or IHT205 and the personal representatives must establish that the two-year minimum period and trading company conditions are met at the date of death.
What is the two-year holding rule for EIS BPR and what happens if I reinvest?
The two-year minimum holding period requires you to have owned the qualifying EIS shares for at least two years immediately before the date of death (or gift). The clock runs from the date the shares were issued to you, not from the date of EIS relief certificate. If you sell EIS shares and reinvest the proceeds into a new EIS company, the two-year clock restarts from the date of the new subscription — the period of holding the original shares does not count towards the minimum for the replacement shares. This means that frequent reinvestment or portfolio rebalancing can inadvertently create periods when some or all EIS holdings do not yet qualify for BPR. For IHT planning purposes, investors who want to maintain full BPR coverage should track the acquisition date of each EIS investment and avoid selling within the two-year window unless BPR continuity is not a concern.
Does the April 2026 £2.5m BPR cap affect EIS investments?
From 6 April 2026, a combined BPR/APR cap of £2.5 million per person applies to the value of business and agricultural property qualifying for 100% relief. Assets above the cap attract 50% relief (an effective IHT rate of 20%). For most EIS investors, this cap will not be an issue: the EIS annual investment limit is £1 million per year (£2 million if at least £1 million is invested in knowledge-intensive companies). An investor making the maximum EIS investment each year for several years could in theory accumulate an EIS portfolio above £2.5 million, but this would require substantial ongoing investment over many years. Where an investor also holds qualifying business or agricultural assets, the combined value of all such assets is measured against the £2.5m threshold — the EIS portfolio and any family business share the same allowance. Careful planning of which assets take priority within the cap is important in high-value estates.
What is the trading company requirement for EIS BPR?
BPR under s105 IHTA 1984 is only available for shares in companies carrying on a qualifying trade — it does not apply to investment companies. EIS already requires the company to be a qualifying trading company (not carrying on a 'disqualifying activity' such as property development, financial activities, or asset-leasing) as a condition of the EIS income tax relief. This means that EIS companies are generally already required to meet a trading test, and the BPR trading requirement is satisfied in parallel. However, if the company's activities change after the EIS investment is made and it ceases to trade, both the EIS relief conditions and the BPR conditions can be lost. If HMRC withdraws EIS status from the company (for example because of a trade change), the BPR position should be reviewed — the IHT trading test and the EIS trading test are similar but not identical.
How does EIS compare with VCTs and AIM shares for IHT planning?
EIS and SEIS shares in unquoted trading companies qualify for 100% BPR after two years — they are the most reliable IHT-efficient equity investment vehicle. AIM shares have historically qualified for 100% BPR but from April 2026 only 50% relief applies (an effective IHT rate of 20%). Venture Capital Trust shares do not qualify for BPR at all: VCT shares are listed on the main market of the London Stock Exchange and are therefore quoted securities, which fall outside s105 IHTA 1984. VCTs offer excellent income tax relief (30% on subscription, up to £200,000 per year) and tax-free dividends and growth, but they are not an IHT planning tool. Investors seeking IHT relief should use EIS or SEIS rather than VCTs for that purpose. It is common for advisers to recommend a combination: VCT for income tax and CGT efficiency, EIS for both income tax relief and IHT planning.
EIS in Your Estate Plan — Put It in Your Will
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