The EIS three-year holding period and how relief is withdrawn

EIS relief given at the point of claim is not final. It becomes final only once the three-year qualifying period has run without any of the conditions breaking. This is the single most important thing for an investor to plan around, because it fixes the minimum horizon of the investment.

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

When the clock starts

Three years from the date the shares were issued, or three years from the date the company began the qualifying trade if that is later. For a company still pre-trading at the raise, the effective hold can therefore be considerably longer than three years from your payment.

What counts as a disposal

• Selling the shares, whether at a profit or a loss.
• Gifting them to anyone other than a spouse or civil partner.
• The company buying them back or redeeming them.
• An exchange of shares that does not meet the reconstruction rules.

A transfer to a spouse or civil partner living with you does not count as a disposal. They step into your position, and relief is withdrawn only if they later dispose of the shares within the period.

How much is withdrawn

Breaches outside your control

• The company ceases to carry on a qualifying trade, or a substantial part of the trade becomes an excluded activity.
• It becomes a subsidiary of, or is otherwise controlled by, another company.
• It becomes listed on a recognised stock exchange under arrangements that existed at the time of the share issue.
• The money raised is not employed for the qualifying business activity within the time allowed.

A genuine trade sale of the whole company after three years is fine, and is the usual route to a return. A sale before three years is not, however good the offer. Note that a company failing and being wound up is not a withdrawal event: the relief stands and loss relief is available, as set out in EIS loss relief.

If relief is withdrawn you must tell HMRC, normally within 60 days of the event. The SEIS position is in the SEIS three-year holding period.