EIS loss relief: what happens when the company fails

Most early-stage companies do not deliver a return, and a meaningful number fail completely. Loss relief is what makes a diversified EIS portfolio arithmetically defensible: the downside on any single holding is materially less than the amount subscribed.

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

The net amount at risk

You do not claim a loss on the full amount invested. You claim on what is left after the income tax relief you already received.

Every figure assumes income tax relief was claimed in full and not withdrawn, and that you have enough income or gains to absorb the loss.

Income or gains

• Against income: in the tax year of the loss, the previous tax year, or both. This is usually the more valuable route for higher and additional rate taxpayers.
• Against capital gains: in the year of the loss, or carried forward indefinitely against future gains.
• Relief against income falls within the general limit on income tax reliefs, broadly the greater of £50,000 and 25% of adjusted total income.

When the loss can be claimed

A loss arises on a disposal, which includes a sale at less than cost. Where the company has failed but not yet been dissolved, a negligible value claim treats the shares as disposed of and reacquired at nil, so the loss can be claimed without waiting for the liquidation to conclude. The claim is generally made within four years of the end of the tax year concerned.

SEIS loss relief works the same way but starts from a 50% income tax relief, so the net amount at risk is smaller; see SEIS loss relief. The broader question of how to size positions so that losses are survivable is covered in building an early-stage investment portfolio.