EIS carry back: claiming relief against last year's tax

Income tax relief is capped by the tax you actually owe. If you invest £100,000 in a year when your income tax liability is £12,000, £18,000 of the £30,000 relief has nowhere to go. Carry back is the mechanism that solves this.

This guide is one part of a set covering the whole scheme. The EIS hub lists every guide, from eligibility to claiming.

What it does

You elect to treat all or part of the amount subscribed as though the shares had been issued in the previous tax year. The relief is then set against that year's income tax liability, usually producing a repayment or an adjustment to what you owe.

Without the election, £18,000 of relief in this example would be wasted. Relief cannot be carried forward to a future year, so carry back is the only way to move it.

The limits

• You can carry back to the immediately preceding tax year only.
• The previous year's annual limit applies to the carried-back amount, taking account of any EIS investment already relieved in that year.
• Relief in the earlier year is still capped by that year's income tax liability.
• Carry back does not change the three-year holding period, which still runs from the actual date of issue.

When it is worth using

• Your income this year is lower than last year, for example after a one-off bonus or a business sale in the earlier year.
• You invested late in the tax year and want the relief to land against a liability you have already paid.
• You have invested more this year than your liability can absorb.
• You paid tax at a higher effective rate last year, for example where the personal allowance taper applied.

How to make the election

You cannot elect at the point of investment. Wait for the EIS3 certificate, then state on page three of the certificate, or in the relevant box of your self assessment return, how much you want treated as invested in the earlier year. If the earlier year's return has already been filed, HMRC will normally amend it or make a standalone repayment. The full claim process is in how to claim EIS relief, and the SEIS equivalent in SEIS carry back.