For Financial Advisers Only. This tool is designed for use by UK-regulated financial advisers and is not intended for retail investors.
Your client's worst case isn't 100p. It's 38.5p.
Income tax relief and loss relief combine to cap the effective cost of total failure at 38.5p per £1 for a 45% taxpayer. The company only needs to return 70p per £1 to break even.
Two reliefs. One powerful combination.
EIS income tax relief (30%) and loss relief (up to 45%) stack to protect your client's downside.
45% Taxpayer
38.5p
Maximum effective loss per £1 invested. 61.5p recovered through tax reliefs.
40% Taxpayer
42.0p
Maximum effective loss per £1 invested. 58p recovered through tax reliefs.
20% Taxpayer
56.0p
Maximum effective loss per £1 invested. 44p recovered through tax reliefs.
No Income to Claim Against?
53.2p / 57.4p
If loss relief is claimed against capital gains instead: 53.2p (higher rate) or 57.4p (basic rate).
Loss relief isn't just a safety net — it's a planning tool.
How the two reliefs stack
When your client subscribes for EIS shares, they receive 30% income tax relief — reducing the effective cost from 100p to 70p per £1. If the company fails, the 70p allowable loss qualifies for loss relief under s.131 ITA 2007 — claimable against income tax at the client's marginal rate.
For a 45% taxpayer with a total loss: 30p income tax relief + 31.5p loss relief = 61.5p recovered per £1 invested. Maximum real exposure: 38.5p per £1.
Loss relief in four steps
Example: a 45% additional rate taxpayer invests £100,000 in an EIS qualifying company.
Subscribe for EIS shares
Your client invests £100,000 and claims 30% income tax relief (£30,000) (ITA 2007, Part 5). Effective cost drops to 70p per £1 invested.
Company fails or underperforms
The company enters administration or returns less than the effective cost. Your client receives £0 in proceeds (total loss scenario).
Claim loss relief under s.131
The 70p allowable loss is claimed against income at 45% — recovering a further 31.5p per £1. Alternatively, claim against CGT at 24%.
Net position: 38.5p per £1 lost
30p (relief) + 0p (proceeds) + 31.5p (loss relief) = 61.5p recovered. The maximum real loss is 38.5p per £1 — not 100p.
Four ways to claim EIS loss relief
Your client has multiple options. The right choice depends on their income, gains, and whether they used CGT deferral.
s.131 ITA 2007
Claim against income
Set the allowable loss against income of the year of loss or the preceding year. Relief is at the client's marginal rate — up to 45% for additional rate taxpayers. This is usually the most valuable route.
No cap. EIS losses claimed under s.131 are specifically exempt from the £50,000 / 25% sideways loss relief cap that applies to most trade losses.
TCGA 1992
Claim against capital gains
Set the allowable loss against chargeable gains of the same year. Relief is at the CGT rate — 24% (higher rate) or 18% (basic rate). Less valuable than income relief, but useful if the client has no income liability.
Best for: Clients with substantial realised gains but limited income tax liability.
TCGA 1992
Carry forward
If no income or gains are available in the current year, the capital loss can be carried forward indefinitely to offset against future capital gains. The loss reduces the annual exempt amount first.
Best for: Clients with no current income or gains to claim against, but who expect future disposals.
Schedule 5B, TCGA 1992
Offset against deferred CGT
If the client originally used EIS CGT deferral, the loss relief can offset the deferred gain that crystallises when shares are disposed of. The deferred CGT and the loss relief can partially or fully cancel each other out.
Best for: Clients who used CGT deferral relief when subscribing. The deferral doesn't make the downside worse.
When CGT deferral meets loss relief
A common scenario: your client deferred a gain into EIS, and the company fails. Here's how the reliefs interact.
Worked Example: £500,000 deferred gain, total loss, 45% taxpayer (3+ years)
Model it for your client
Adjust the inputs to see how income tax relief and loss relief affect the net position at any exit level.
Relief is calculated at your selected marginal rate. If the loss is large enough to push taxable income into a lower band, the effective relief rate may be lower. For investments over £50,000, consider checking the precise impact with your tax adviser.
Loss relief at marginal income tax rate (s.131 ITA 2007). Available regardless of hold period.
What happens to each £1 invested
→ 70.0p effective cost
Effective loss per £1
Returns are not guaranteed
Your client's position on £100,000
£30,000
Tax relief
£31,500
Loss relief
-£38,500
Net loss
Full breakdown
| Item | Amount | Per £1 |
|---|---|---|
| Investment | £100,000 | 100.0p |
| Income tax relief (30%) | +£30,000 | +30.0p |
| Effective cost | £70,000 | 70.0p |
| Proceeds at 0.0× | £0 | 0.0p |
| Allowable loss (cost − proceeds) | £70,000 | 70.0p |
| Loss relief (45% income) | +£31,500 | +31.5p |
| Net position | −£38,500 | -38.5p |
Scenario comparison
Showing: shares held 3+ years — all income tax relief retained, gains are CGT-exempt.
| Exit | Proceeds | Relief | Loss Relief | Net | Per £1 |
|---|---|---|---|---|---|
| 0.0×Total loss | £0 | +£30,000 | +£31,500 | -£38,500 | -38.5p |
| 0.3× | £30,000 | +£30,000 | +£18,000 | -£22,000 | -22.0p |
| 0.5× | £50,000 | +£30,000 | +£9,000 | -£11,000 | -11.0p |
| 0.7×Break-even | £70,000 | +£30,000 | — | £0 | +0.0p |
| 0.8× | £80,000 | +£30,000 | — | +£10,000 | +10.0p |
| 0.9× | £90,000 | +£30,000 | — | +£20,000 | +20.0p |
| 1.0×Capital returned | £100,000 | +£30,000 | — | +£30,000 | +30.0p |
Above 1×: the upside is entirely tax-free
When the investment returns more than 1× after 3 years, your client keeps the full 30% income tax relief and all gains are completely exempt from CGT and income tax. In a non-EIS investment, those gains would be taxable.
Example: 2× return on £100,000
With EIS: £30,000 relief kept + £100,000 gain = £130,000 total benefit. No tax to pay.
Without EIS: same 2× return
£100,000 gain minus £24,000 CGT (24%) = £76,000 net gain. EIS investor is £54,000 better off.
Loss relief — the details
Is loss relief relevant for your client?
Most Suitable For
- ✓Client is a UK income taxpayer at 40% or 45% marginal rate — loss relief is significantly more valuable at higher rates
- ✓Client has sufficient income or capital gains to claim loss relief against if needed
- ✓Client understands the risk is real — loss relief reduces the effective cost of failure, it does not prevent failure
- ✓Client is investing with a diversified portfolio approach — some companies will fail, some will succeed
- ✓Client is not relying on the investment for income or short-term liquidity
- ✓Client's adviser has confirmed suitability and capacity for loss across the overall portfolio
Key Risks to Consider
- ⚠Capital loss is real: EIS investments are high-risk and total loss of capital is possible
- ⚠Illiquidity: no secondary market for EIS shares; capital is locked for the hold period
- ⚠Long holding period: expected hold is typically 5–10 years; early exit is rare and usually poor value
- ⚠Tax relief clawback: if shares are sold within 3 years, income tax relief may be withdrawn; s.131 loss relief remains available but CGT exemption under s.150A does not apply
- ⚠Loss relief timing: the client needs sufficient income or gains to claim relief; if not, it may need to be carried forward
- ⚠EIS qualifying status: the company must maintain EIS status; loss of status claws back reliefs
- ⚠No FSCS protection: EIS losses are not covered by the Financial Services Compensation Scheme
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This tool is for illustrative purposes only and does not constitute financial advice. EIS investments carry significant risks, including loss of capital, illiquidity, and the potential for HMRC to withdraw tax reliefs. Tax treatment depends on individual circumstances and may be subject to change.
Past performance is not a reliable indicator of future results. The value of investments and income from them can go down as well as up and investors may not get back the amount originally invested.
Ascension Ventures is authorised and regulated by the Financial Conduct Authority (FRN: 833506). Tax reliefs referred to are those applying under current legislation, which may change. The availability of tax reliefs depends on individual circumstances.