The short answer
EIS gives 30% income tax relief, lets you defer capital gains, gives loss relief, and its shares usually qualify for inheritance tax Business Relief after two years. A VCT gives 20% income tax relief (down from 30% from 6 April 2026) and tax-free dividends, but no loss relief and no inheritance tax relief.
How the two schemes work
Under the Enterprise Investment Scheme (EIS) you subscribe for new shares directly in a small, unquoted trading company, either one company at a time or through an EIS fund that invests across several.
A Venture Capital Trust (VCT) is a company listed on the London Stock Exchange that invests in many small companies. You buy shares in the VCT, so your money is spread across its portfolio from day one.
The reliefs side by side (2026/27)
| Relief | EIS | VCT |
|---|---|---|
| Income tax relief | 30% | 20% (30% for shares issued before 6 April 2026) |
| Maximum investment a year | £1m, or £2m if at least £1m goes into knowledge-intensive companies | £200,000 |
| Minimum holding period | 3 years | 5 years |
| Capital gains tax on disposal | Exempt if income tax relief was given and the shares were held 3 years | Exempt |
| Deferring other capital gains | Yes, on 100% of the investment | No |
| Loss relief against income | Yes | No |
| Dividends | Taxed normally | Tax-free |
| Claim against the previous tax year | Yes, you can treat the investment as made in the previous year | No, only the year of investment |
| Inheritance tax (Business Relief) | Usually yes, after 2 years | No |
Sources: HMRC, Tax relief for investors using venture capital schemes (updated 6 April 2026); Business Relief for Inheritance Tax. Checked 24 October 2026.
What changed in April 2026
- →VCT income tax relief fell to 20%For VCT shares issued on or after 6 April 2026. On a £10,000 subscription that is £2,000 of relief instead of £3,000. EIS relief stays at 30%.
- →Business Relief is cappedFor deaths on or after 6 April 2026, 100% Business Relief applies to the first £2.5 million of qualifying business and agricultural property combined; anything above gets 50%. Shares on markets that don't count as "listed", such as AIM, get 50%.
EIS, VCTs and inheritance tax
This is where the two schemes differ most.
EIS shares are shares in unlisted trading companies, which normally qualify for Business Relief once you have owned them for at least two years. Within the £2.5 million allowance, that can take them out of your estate for inheritance tax entirely. The company has to still be a qualifying trading business when you die, so relief isn't guaranteed.
VCT shares don't qualify. A VCT is a listed company whose business is holding investments, and Business Relief excludes businesses that mainly make or hold investments. VCT shares are counted in your estate at full value.
Which suits whom
EIS tends to suit
- Investors with a capital gain to defer
- Those thinking about inheritance tax
- People comfortable backing individual young companies
A VCT tends to suit
- Investors who want a spread of companies
- Those looking for tax-free dividend income
- People who can leave the money for five years
Both are high-risk investments in small companies: you can lose money, and the shares can be hard to sell. The tax relief should be a bonus on an investment you'd be happy to make anyway. Choosing an investment is a matter for a regulated financial adviser; an accountant can tell you how the reliefs fit your tax position.
Common questions
What is the difference between EIS and VCT?
With EIS you buy new shares directly in one small unquoted trading company (often through a fund that spreads you across several). A VCT is a listed company that invests in many small companies for you. EIS offers more relief (30% income tax relief, capital gains deferral, loss relief and usually inheritance tax relief); a VCT offers 20% relief from 6 April 2026 plus tax-free dividends, with no loss relief or inheritance tax relief.
Do VCT shares qualify for inheritance tax relief?
No. VCTs are listed investment companies, and Business Relief doesn't apply to a business that mainly makes or holds investments. VCT shares stay in your estate at full value for inheritance tax.
Do EIS shares qualify for inheritance tax relief?
Usually, yes. Shares in an unlisted trading company normally qualify for Business Relief once you have held them for two years. From 6 April 2026 the 100% rate applies to the first £2.5 million of qualifying business and agricultural property in total; above that the relief is 50%. Shares traded on AIM qualify for 50%.
What is the VCT income tax relief rate for 2026/27?
20% on up to £200,000 invested in a tax year, for shares issued on or after 6 April 2026. It was 30% for earlier subscriptions. You must hold the shares for five years to keep it.
This guide summarises HMRC's published rules as checked on 24 October 2026. It is general information, not tax or investment advice for your circumstances.