EIS and SEIS Shares IHT UK 2026: Business Property Relief, 100% Relief After 2 Years, Finance Act 2026 £1m Cap, and Estate Planning with Enterprise Investment Scheme
EIS and SEIS shares qualify for 100% Business Property Relief after a two-year holding period, no IHT on death. The Finance Act 2026 £1m combined BPR/APR cap limits this to the first £1m of qualifying assets per estate. Income tax relief is not clawed back on death; CGT is rebased to nil at death. Triple tax benefit for investors who hold to death.
EIS/SEIS: 2-Year Minimum Hold Required, FA 2026 £1m Cap Now Limits 100% Relief
BPR at 100% on EIS/SEIS: shares in qualifying unquoted trading companies (s104(1)(a) IHTA 1984). Minimum 2yr holding period before death. FA 2026: £1m combined BPR/APR cap per estate, excess receives 50% BPR only. Income tax relief (30% EIS; 50% SEIS) not clawed back on death. CGT rebasing on death (s62 TCGA): no capital gains tax on accrued gain. Trading test at date of death: company must still be trading. Excepted assets rule: surplus cash in the company may be denied BPR. Loss relief if company fails: up to 45% income tax relief on net investment loss.
| Aspect | Rule / Principle | Example / Scenario | Planning Guidance |
|---|---|---|---|
| How EIS/SEIS shares qualify for 100% Business Property Relief | BUSINESS PROPERTY RELIEF ON EIS AND SEIS SHARES (s104 IHTA 1984): BPR at 100% applies to 'relevant business property' which includes shares in a qualifying unquoted trading company (s104(1)(a) IHTA). EIS shares (Enterprise Investment Scheme, Income Tax Act 2007, Part 5) and SEIS shares (Seed Enterprise Investment Scheme, ITA 2007, Part 5A) are shares in qualifying small trading companies that are NOT listed on a recognised stock exchange. HMRC's AIM Market position: shares listed on AIM are NOT on a recognised stock exchange, they qualify as 'unquoted' for BPR purposes. EIS/SEIS companies by definition are unquoted. THE TWO-YEAR MINIMUM PERIOD (s106 IHTA): BPR only applies if the shares have been owned for at least TWO YEARS before the chargeable event. On death: the shares must have been owned for 2yr immediately before death. On a lifetime gift: the shares must have been owned for 2yr before the gift, AND the donee must still own the shares (or replacement property) at the time of the donor's death. THE TRADING TEST (s105(3) IHTA): BPR does not apply to a company whose business consists wholly or mainly of: (a) dealing in securities, stocks or shares; (b) dealing in land or buildings; (c) making or holding investments. An EIS/SEIS company must be a qualifying TRADING company, by HMRC EIS rules, a company cannot qualify for EIS/SEIS income tax relief unless it carries on a qualifying trade. Therefore: an EIS/SEIS company that qualified for the income tax reliefs on investment ALSO satisfies the BPR trading test (they use the same HMRC approval). COMPANY CEASING TO TRADE: if the EIS/SEIS company ceases to trade after the investor's investment, the company may fail the BPR trading test, even though the investor still holds the shares. BPR is tested at the date of death (or gift), not at the date of investment. An investor holding EIS shares in a company that has since gone into administration: no BPR (company not trading). EXCEPTED ASSETS (s112 IHTA): BPR does not apply to 'excepted assets', assets held in the company that are NOT used for the purposes of the business. Cash held by the company above what is needed for working capital may be an excepted asset, HMRC can deny BPR on that portion of the company's value. EIS/SEIS companies are typically cash-light (they raise equity to spend on the business): the excepted assets issue is less acute than for mature companies holding surplus cash. | EIS BPR WORKED EXAMPLE: James (age 65) invests £500k in an EIS fund in April 2024. The fund deploys the capital across 15 qualifying EIS companies. By April 2026 (2yr holding period met): all shares qualify for BPR if James dies now. James's estate value: £2m (including the £500k EIS portfolio). IHT WITHOUT BPR: NRB £325k + RNRB £175k = £500k threshold. IHT = 40% × (£2m − £500k) = 40% × £1.5m = £600k. IHT WITH BPR ON £500k EIS PORTFOLIO: taxable estate = £2m − £500k (BPR) = £1.5m. IHT = 40% × (£1.5m − £500k threshold) = 40% × £1m = £400k. IHT SAVING FROM BPR: £600k − £400k = £200k. But FA 2026 £1m cap: James's estate has NO other BPR-qualifying assets. The entire £500k EIS portfolio falls within the £1m cap, 100% BPR applies to all £500k. If James had £700k in AIM shares and £500k EIS: total BPR-qualifying assets = £1.2m. The first £1m receives 100% BPR; the remaining £200k receives 50% BPR. So: BPR deduction = £1m × 100% + £200k × 50% = £1m + £100k = £1.1m of BPR (but total portfolio value only £1.2m, so BPR deducted = £1.1m, leaving £100k to bear IHT). EIS manager portfolio structuring: some EIS managers specifically design 'BPR portfolios' to generate BPR on death. These are discretionary EIS portfolios where the manager holds a diversified portfolio of qualifying trading companies on behalf of the investor. | ESTATE PLANNING WITH EIS/SEIS, KEY CONSIDERATIONS: (1) START EARLY: the 2-year minimum period means that EIS/SEIS investment for IHT purposes should be made at least 2 years before anticipated death. For investors with terminal illness, the 2-year period starts from investment, not a retroactive period. If the investor dies within 2yr: NO BPR, full IHT on the EIS/SEIS value. (2) DIVERSIFICATION: EIS/SEIS are high-risk investments. A professional IHT planning strategy uses EIS/SEIS alongside other planning (trusts, gifting, life insurance in trust), not as the sole planning tool. Diversify across multiple companies and sectors. (3) FA 2026 £1m CAP: from the Finance Act 2026, there is a £1m combined cap across all BPR and APR-qualifying assets per estate at 100%. Plan the portfolio to ensure the highest-value assets use the cap most efficiently. If you hold £1m in AIM shares (100% BPR) and £500k in EIS (100% BPR): only £1m total receives 100% BPR; the remaining £500k receives 50%. (4) LIFETIME GIFTING OF EIS SHARES: gifting EIS shares is a CLT or PET, HOLD-OVER RELIEF (s165 TCGA 1992): for EIS shares (which qualify as business assets), the donor and donee can jointly claim hold-over relief to defer the CGT on the gift. The donee takes the donor's base cost. If the donee then sells, they pay CGT on the full gain. (5) REPLACEMENT PROPERTY RULE (s107 IHTA): if BPR shares are replaced within 2yr before death (sold and reinvested in other BPR shares): the replacement shares inherit the earlier ownership period for the 2yr minimum period, so a portfolio manager switching between EIS companies does not restart the 2yr clock if the new shares are also BPR-qualifying. (6) LOSS RELIEF: if EIS/SEIS shares become worthless or are disposed of at a loss, claim income tax loss relief (ITA 2007, s131), loss set against income at up to 45% rate in the year of loss or preceding year. This provides partial downside protection. |
| Finance Act 2026 £1m BPR cap: impact on EIS/SEIS portfolios | FINANCE ACT 2026 BPR/APR CAP, IMPACT ON EIS/SEIS: the Finance Act 2026 introduced a combined £1m cap on the amount of relevant business property and agricultural property on which the owner can claim 100% BPR/APR relief per estate. ABOVE £1M: the excess over £1m is eligible for 50% BPR/APR relief (not 0%). COMBINED CAP: the £1m cap applies across the total of all BPR-qualifying assets AND APR-qualifying assets in the estate. Example: if the estate has £700k in AIM shares (100% BPR) + £400k in EIS (100% BPR) + £500k in farmland (100% APR) = £1.6m total qualifying assets. The first £1m receives 100% BPR/APR; the remaining £600k receives 50% BPR/APR (rather than 100%). EFFECTIVE TAX RATE ON EXCESS: on the £600k excess above £1m: 50% BPR reduces the chargeable value to £300k. IHT on £300k = £120k. Effective rate: 20% (50% BPR reduces the effective IHT rate from 40% to 20%). WHO IS MOST AFFECTED: the cap specifically affects high-net-worth estates with large BPR/APR portfolios, AIM ISA holders, EIS portfolios combined with other BPR assets, farming estates, family business owners. THE SETTLED PROPERTY RULE: for settled property, the £1m cap applies separately to each settlement. A trust set up for BPR-qualifying assets has its own £1m cap, separate from the settlor's personal estate cap. This creates a planning opportunity: putting BPR-qualifying assets into a trust (before the trust creation is a CLT) can potentially double the cap (£1m in the personal estate + £1m in the trust) but the CLT charge on the trust creation must be managed. PRE-FA 2026 INVESTMENTS: EIS shares purchased before the FA 2026 announcement are NOT grandfathered at 100% relief, the new 50% rate above £1m applies to all BPR assets in the estate at death or transfer, regardless of when purchased. NO TRANSITIONAL RELIEF: unlike some tax changes, the FA 2026 BPR cap has NO transitional period for existing portfolios. | FA 2026 CAP, LARGE EIS PORTFOLIO EXAMPLE: Patricia (a successful entrepreneur) has an estate of £5m: £1.5m home, £1.5m cash/ISAs, £2m EIS portfolio (invested over 5yr; all shares held 2yr+; all companies trading). TAX POSITION BEFORE FA 2026: the £2m EIS portfolio would be 100% BPR-exempt. Taxable estate = £5m − £2m = £3m. IHT = 40% × (£3m − £500k NRB+RNRB) = 40% × £2.5m = £1m. TAX POSITION AFTER FA 2026: the £2m EIS portfolio: first £1m = 100% BPR (£1m exempt); remaining £1m = 50% BPR (£500k exempt). Total BPR: £1m + £500k = £1.5m BPR deduction. Taxable estate = £5m − £1.5m = £3.5m. IHT = 40% × (£3.5m − £500k) = 40% × £3m = £1.2m. IHT INCREASE FROM FA 2026: £1.2m − £1m = £200k more IHT under the new cap. Patricia's IHT adviser must review the estate plan: consider whether the EIS portfolio should remain as is (accept the cap impact) or whether to supplement with lifetime gifting (7yr PET) of excess EIS/other assets or insurance-in-trust to fund the additional IHT. | PLANNING AROUND THE FA 2026 £1M CAP: (1) PRIORITISE THE CAP: ensure your highest-value assets qualify for 100% BPR within the £1m limit. If you hold mixed BPR assets (AIM ISA, EIS, family business shares), the cap must be allocated efficiently. Business shares typically take priority (they are harder to gift; they provide employment and trading substance). EIS is liquid in comparison. (2) EIS AS TOP-UP PLANNING: post-FA 2026, EIS is most valuable as a top-up to an existing BPR cap, if you already have £1m+ in other BPR assets, new EIS investment above the cap only gives 50% relief (20% effective IHT rate), still useful, but less compelling than before FA 2026. (3) GIFTING EXCESS EIS EARLIER: if the EIS portfolio has been held 2yr+ (BPR condition met), consider making a PET of excess EIS shares above the £1m cap to adult children. The PET uses no IHT if the donor survives 7yr. Hold-over relief may also be available for CGT. By gifting out-of-estate assets, the donor reduces the estate below the cap threshold (or uses the cap for retained assets). (4) LIFE INSURANCE IN TRUST: for any IHT above £1m threshold, a whole-of-life insurance policy written in trust is the cleanest way to fund the expected IHT liability, the policy sum assured meets the tax on death without selling assets. The premium is a regular gift out of income (potentially exempt under the normal expenditure from income exemption, s21 IHTA). (5) TRUST PLANNING FOR BPR ASSETS: consider settling some BPR-qualifying EIS shares into trust (CLT, but at 20% IHT above the NRB; 7yr rule reduces the CLT). The trust has its OWN £1m BPR cap. If personal estate: £1m BPR cap. Trust: £1m BPR cap. Total effective cap: £2m BPR at 100%. But: the CLT charge on transfer must be weighed against the benefit. |
| Income tax relief, CGT rebasing on death, and the interaction of EIS/SEIS reliefs | INCOME TAX RELIEF ON EIS/SEIS, INTERACTION WITH IHT: EIS INCOME TAX RELIEF: 30% income tax relief on EIS investments up to £1m per tax year (£2m for knowledge-intensive companies). SEIS INCOME TAX RELIEF: 50% income tax relief on SEIS investments up to £200k per tax year. CLAWBACK RULE: income tax relief is clawed back if the investor disposes of the shares within 3 years of the investment. ON DEATH: the investor's death is NOT a disposal for income tax relief clawback purposes. Therefore: if the investor holds EIS/SEIS shares to death, the income tax relief is NOT clawed back, the investor (or the estate) keeps the full income tax relief. INTERACTION: an investor who invests £500k in EIS, claims £150k income tax relief (30%), then dies 3 years later, the estate benefits from: (a) the £150k income tax relief is retained (not clawed back); (b) the EIS shares are included in the estate at market value; (c) if the 2yr holding period is met: 100% BPR removes the EIS shares from the IHT charge. The combination of income tax relief + BPR + CGT rebasing on death makes EIS/SEIS one of the most tax-efficient investment structures available. CGT REBASING ON DEATH (s62 TCGA 1992): when the investor dies, their assets are deemed to be acquired by the estate at market value at the date of death, with NO CGT charge on the accrued gain. An EIS company held from £50k initial cost now worth £500k: the £450k gain is NOT taxed (no CGT on death). The estate inherits the shares at £500k market value. If the beneficiary sells immediately: no CGT. IF BPR ALSO APPLIES: the estate also claims 100% BPR, the £500k EIS shares are excluded from IHT. Combined effect: the investor's total return is: (a) income tax relief on investment; (b) no income or CGT during the holding period (EIS companies are typically growth-oriented, not dividend-paying); (c) no CGT on death (s62 rebasing); (d) no IHT on death (100% BPR within the £1m cap). This 'triple tax-free' outcome makes EIS a premium IHT planning tool for qualifying investors. | TRIPLE RELIEF WORKED EXAMPLE: Christine (age 68, higher-rate taxpayer) invests £300k in EIS in 2024-25. Income tax relief: 30% × £300k = £90k refunded. Effective net investment: £300k − £90k = £210k. After 2yr the EIS portfolio grows to £420k. Christine dies in 2027. INCOME TAX RELIEF: retained, not clawed back (held to death). CGT ON DEATH: nil (s62 rebasing, heirs take at £420k market value; no CGT on the £120k gain from £300k to £420k). IHT: 100% BPR applies (shares held 2yr; companies still trading; £420k within £1m cap). IHT on EIS portfolio: NIL. NET COST OF THE £420k EIS PORTFOLIO: Christine paid £300k in cash. She received £90k income tax relief back. Net cash invested: £210k. She left £420k of value to her heirs (net of any investment growth/loss). IHT: £0 on EIS shares. CGT: £0. TAX-FREE UPLIFT: the difference between what Christine paid net (£210k) and what her heirs received (£420k) is £210k, all tax-free. If the EIS had been a normal listed share investment: IHT = 40% × £420k = £168k (assuming above NRB). CGT if sold during lifetime: 20% on gains. COMPARISON: normal investment, heirs receive approx. £252k (after IHT). EIS investment, heirs receive £420k. Difference: £168k. CAVEAT: EIS/SEIS are high-risk. The company could fail. Loss relief (income tax) on a failed EIS company: Christine invests £300k. Company fails (worth £0). Income tax relief: £90k (retained). Loss relief: (£300k − £90k already relieved) = £210k net investment. ITA 2007 s131: £210k loss set against Christine's income at 45% = £94,500 income tax relief on the loss. TOTAL TAX RELIEF (FAIL SCENARIO): £90k income tax relief at investment + £94,500 loss relief = £184,500. Effective cost after all reliefs: £300k − £184,500 = £115,500. EIS provides substantial downside protection even on company failure. | KEY PLANNING RULES, EIS/SEIS FOR IHT REDUCTION: (1) TIMING IS CRITICAL: invest at least 2yr before anticipated death. For investors with health concerns, invest early. EIS managers can provide 'faster deployment' portfolios where investment is made into already-qualifying companies rapidly, reducing the risk of dying within the 2yr window. (2) KEEP COMPANIES TRADING: BPR requires the EIS company to be a trading company at the date of death (not just at investment). Monitor the portfolio, companies that have become dormant, switched to investment activities, or gone into administration may no longer qualify. Diversified EIS funds across 15+ companies reduce the risk of a single company failure affecting the BPR position. (3) SEIS: SEIS shares qualify for BPR in the same way as EIS. SEIS is limited to £200k/yr investment, so less impactful for large estates, but still useful. SEIS's 50% income tax relief is more generous than EIS's 30%. (4) FA 2026 £1M CAP, POSITION EIS WITHIN THE CAP: if you already have £1m+ in AIM shares or family business shares (other BPR assets), the additional EIS portfolio above £1m only gets 50% BPR. Consider rebalancing to maximise the cap efficiency. (5) PROBATE AND BPR CLAIMS: on death, the personal representatives must claim BPR on the EIS shares in the estate's IHT return (IHT400 with Supplement IHT412 for unlisted shares). The PR must obtain valuations of the unquoted shares at date of death. EIS fund managers typically provide a date-of-death valuation and confirmation of trading status. (6) HOLD-OVER RELIEF FOR GIFTS: if gifting EIS shares during lifetime, claim CGT hold-over relief jointly (donor + donee). The donee inherits the donor's base cost. If the donee sells after the donor's death: CGT on the full accrued gain. Hold-over is often better than outright sale + reinvestment. |
EIS and SEIS shares IHT UK 2026. IHTA 1984, s104(1)(a): 'relevant business property' includes shares in a qualifying unquoted company. s106 IHTA: two-year minimum ownership period. s105(3) IHTA: BPR does not apply to a business consisting wholly or mainly of dealing in investments. s112 IHTA: excepted assets rule, assets not used in the business not eligible for BPR. Finance Act 2026: introduced the combined £1m BPR/APR cap per estate at 100% relief; above £1m, 50% relief applies. Income Tax Act 2007 (ITA 2007), Part 5 (Enterprise Investment Scheme), s156-257: EIS conditions, qualifying trading company, unquoted, qualifying investor; income tax relief at 30%; clawback if disposed within 3yr. ITA 2007, Part 5A: SEIS, qualifying conditions; 50% income tax relief; £200k annual limit. Death is not a disposal for EIS/SEIS income tax relief clawback: s207 ITA 2007 (disposal triggers), death not listed as a disposal triggering clawback. TCGA 1992, s62: on death, the deceased is deemed to have disposed of and the personal representatives are deemed to have acquired all assets at market value at date of death, no CGT charge on this deemed disposal. ITA 2007, s131: EIS loss relief, allowable loss on EIS shares can be set against income in the year of disposal or preceding year; net investment (after income tax relief) is the loss base. BPR and EIS fund portfolios: HMRC's approach is to assess each underlying company in the EIS portfolio individually, each must meet the BPR trading test at the date of the investor's death. Diversified EIS funds across 15+ companies reduce the risk of a single non-qualifying company affecting the overall BPR position. HMRC Business Property Relief Manual: IHTM25000-IHTM25360. HMRC guidance on BPR and unquoted shares: IHTM25340. EIS/SEIS HMRC: EIS1 claim form; SEIS1 claim form; EIS3 compliance certificate (issued by the EIS company after HMRC approval). FA 2026 BPR cap: Finance (No.2) Act 2026, enacted the £1m combined BPR/APR cap effective for deaths and chargeable transfers on or after the commencement date.
Frequently Asked Questions
Do EIS shares qualify for Business Property Relief from IHT?
Yes, EIS (Enterprise Investment Scheme) shares qualify for 100% Business Property Relief (BPR) under s104(1)(a) IHTA 1984, provided: (1) the shares have been held for at least 2 years before death; (2) the EIS company is a qualifying trading company at the date of death (not merely holding investments); and (3) the BPR-qualifying assets in the estate are within the Finance Act 2026 £1m cap for 100% relief. Above £1m of combined BPR/APR-qualifying assets per estate, the excess receives 50% BPR. EIS shares are by definition unquoted shares in trading companies, they satisfy the BPR trading test if the company continues to trade. The 2-year minimum holding period is critical: an investor who dies within 2 years of the EIS investment receives no BPR on those shares.
What is the Finance Act 2026 £1m cap and how does it affect EIS IHT planning?
The Finance Act 2026 introduced a combined £1m cap on the amount of assets that can receive 100% BPR and APR per estate. Above £1m of combined BPR/APR-qualifying assets, the excess qualifies only for 50% relief (reducing IHT from 40% to 20% on those assets). This affects EIS investors with large portfolios: an EIS portfolio of £2m would previously have been 100% BPR-exempt; post-FA 2026, the first £1m is 100% BPR-exempt and the second £1m only gets 50% BPR. The cap applies across all BPR-qualifying assets (AIM shares, family business shares, EIS shares) combined, not separately to each asset class. No grandfathering: the cap applies to all assets in the estate at death regardless of when they were purchased.
Is EIS income tax relief clawed back when the investor dies?
No, EIS and SEIS income tax relief is NOT clawed back on the investor's death. Income tax relief clawback only applies if the investor disposes of the shares within 3 years of the investment. Death is not a disposal for clawback purposes. This means an investor who has claimed 30% EIS income tax relief (or 50% SEIS income tax relief) retains that relief if they die after the 3-year period. Combined with 100% BPR on death (if held 2yr+) and CGT rebasing on death (no capital gains tax on accrued gains), EIS can deliver a 'triple relief' outcome: the investor benefits from income tax relief on investment, no CGT on death, and no IHT on death.
What happens to CGT on EIS shares when the investor dies?
On death, the investor's EIS shares are deemed to be acquired by the estate at market value at the date of death under s62 TCGA 1992, this is called 'CGT rebasing' or 'free uplift'. The accrued capital gain during the investor's lifetime is extinguished: no CGT is charged on the gain from the investor's original cost to the date-of-death market value. The estate (and any beneficiaries who inherit the shares) take the shares at the date-of-death value as their CGT base cost. If EIS shares also qualify for BPR: the estate additionally pays no IHT on those shares. The combination of no-CGT-on-death and 100% BPR makes holding EIS shares to death more tax-efficient than selling and reinvesting during lifetime.
How long must I hold EIS shares to qualify for BPR?
You must hold EIS shares for at least 2 continuous years immediately before death (or the date of a chargeable lifetime transfer) to qualify for Business Property Relief. The 2-year minimum period starts from the date the shares were acquired. If you die within 2 years of investing in EIS, no BPR applies, the full value of the EIS shares is included in your estate for IHT at 40%. For estate planning purposes, EIS investment for IHT mitigation should be made at least 2 years before anticipated death. Some EIS managers offer 'accelerated deployment' products to reduce the risk of the investor dying during the qualifying window.
Investing in EIS for IHT? Make Sure Your Will Reflects Your Estate Plan
EIS and SEIS BPR planning works best alongside a well-drafted will that accounts for BPR-exempt and non-exempt assets, the FA 2026 £1m cap, and distribution instructions for your portfolio. Start with WillSafe for standard estates; take specialist advice for EIS-heavy portfolios.
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