Has the government materially weakened one of the four key benefits of SEIS/EIS for angels?!
FounderCatalyst, the UK’s leading platform supporting founders and early-stage investors with SEIS and EIS compliance and investment readiness, today publishes new analysis highlighting the unintended consequences of recent Business Property Relief (BPR) reforms for investors in SEIS/EIS-eligible startups - exactly one month before the changes come into force on 6 April 2026.
To recap, the 4x main benefits of these schemes are often stated as:
- 50% (for SEIS) or 30% (for EIS) up front tax relief.
- Loss relief – up to another ~22% back if the startup fails.
- Capital Gains Tax exemption on an exit, saving a 24% for higher rate tax payers.
- Inheritance Tax (IHT) exemption, due to Business Property Relief (BPR) when shares are held for at least 2 years. IHT is currently set at 40% with rumours that the government may increase this, so IHT exemption is a great positive for investors looking to carefully manage any tax exposure for their estate on death.
Together, these benefits make SEIS genuinely the best tax scheme in the world: other countries offer schemes with similar intent (QSBS in America, ESIC in Australia, LSVCC in Canada, IR-PME in France, EII in Ireland and so on) but none of these are as generous as SEIS.
Of these reliefs, investors tend to focus on the first three, with IHT exemption being a nice to have. But changes announced in the Autumn Budget 2024 have softened the IHT benefits but also created a huge risk for angels, let me explain:
We have a theoretical investor, Bob, who has made 30x investments of £100k each under SEIS/EIS over a few years. If they die, these shares currently all pass to their estate under BPR and no IHT is due. Nice and clean.
The changes in the Autumn Budget 2024 - due to commence from April 26, introduced a £1m limit on the BPR IHT exemption (which has now been revised to a £2.5m limit): each of Bob’s investments would need to be valued when the investor dies and IHT would be due (subject to thresholds) on the aggregate current value of the shares, even though this is a theoretical valuation in an illiquid asset and represents a dry tax charge over an asset which could fail entirely. There is no mechanism to reclaim IHT if the company collapses post-death.
Or, for clarity: The estate will need to fund IHT before an investment exit occurs. The startup(s) may fail, reducing the value to zero, meaning that substantial IHT has been paid on a worthless asset.
Ouch!
Roderick Beer, Managing Director at UKBAA comments: The proposed changes to Business Property Relief (BPR) that would require investors to formally value unquoted shares as part of their estate administration risk creating significant administrative burdens for both investors and HM Revenue & Customs, with little evidence that this would generate meaningful additional tax revenue. Many BPR-qualifying investments are in early stage or growth companies where shares are illiquid and there is no clear market price. Establishing a defensible valuation often requires specialist professional advice, which can be costly and time-consuming, particularly where investors hold multiple small stakes across a portfolio of private companies. Requiring valuations for each holding would likely slow the probate process and increase advisory costs for executors, while also creating additional review and dispute workloads for HMRC. In practice, this could increase administrative complexity on both sides without delivering significant additional tax receipts.
The recently announced softening of the BPR limit from £1m to £2.5m is welcomed, of course, but the underlying issue remains: Bob is almost certainly leaving his loved ones a significant and unquantifiable tax liability on an inherently risky asset class.
For founders: this won’t affect you directly, but raising capital in the UK is already challenging - so anything that makes the asset class less appealing is obviously unwelcome news.
For the UK government: we urge you to protect the long-term integrity of SEIS/EIS by ensuring that IHT rules do not create a dry tax charge on illiquid, high-risk startup shares: reinstating full BPR relief for qualifying investments or introducing a mechanism to defer or reclaim IHT where value is unrealised or subsequently lost.
For investors: No magic wand, I'm afraid but you could consider:
- Analysing your overall exposure to BPR (and the broader IHT charge) and potentially taking out a whole-of-life insurance policy written in trust can provide liquidity to cover any IHT due on SEIS/EIS shares, preventing forced sales of other assets. This is the cleanest mechanical solution, albeit with a premium cost.
- Transferring any (S)EIS investments to your descendants or a trust. If you do so once the 3-year qualifying period has passed (ie outside of Period B) then you will have solidified the upfront tax relief, but the CGT exemption and loss-relief provisions aren't transferrable, which should be a significant consideration.
- Gifting cash to others who can then invest in their own capacity. Clearly, they need the tax bill to offset SEIS/EIS against and you need to be aware of the 7-year rule regarding Potentially Exempt Transfers.
About FounderCatalyst:
At FounderCatalyst, we help founders make their UK startups investor-ready, close funding rounds, and motivate their teams. We handle SEIS and EIS advance assurance, fundraising legal paperwork, data rooms, cap table management, and set up EMI and unapproved share option schemes. Book a call with an expert to learn more about the most cost effective, highest rated and fastest growing equity platform.
