EIS and SEIS for US Citizens in the UK: UK Reliefs the IRS Does Not Recognise

Short answer

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) give UK taxpayers income tax relief when they invest, and freedom from UK capital gains tax when they sell after three years. A US citizen living in the UK can claim them on the UK side like anyone else. The IRS does not recognise either scheme. There is no US deduction for the investment, the gain on sale is fully taxable in the US, and an early-stage UK company can bring US reporting forms with it. This page covers the tax only. It is not a view on any investment.

Key points

• EIS: 30% UK income tax relief on up to £1 million a year, or £2 million where the excess goes into knowledge-intensive companies.
• SEIS: 50% UK income tax relief on up to £200,000 a year.
• Shares held for at least three years can be sold free of UK capital gains tax if the relief was given and not withdrawn.
• The US gives no deduction for the investment and does not exempt the gain.
• The US small business stock exclusion (section 1202) applies only to US C corporations, so it does not cover UK companies.
• A UK startup holding mostly cash can be a PFIC for US purposes. A 10% or larger holding can require Form 5471.

Why the US and UK results differ so much

When the UK exempts a gain, there is no UK tax to credit against the US tax on that gain. A US citizen who sells EIS shares at a profit after three years can owe the full US capital gains tax, at 0%, 15% or 20% for long-term gains plus the 3.8% net investment income tax where it applies. There is nothing on the UK side to offset it.

The income tax relief is a UK credit. It reduces your UK income tax bill, which also reduces the UK tax available as a foreign tax credit on your US return that year. For someone relying on UK tax to cover US tax on their salary, an EIS claim can leave a small US balance to pay. We work this out each year rather than assume it.

Losses

If an EIS company fails, the UK lets you set the loss, net of income tax relief already given, against income. On the US side, worthless stock is a capital loss in the year the shares become worthless. It can offset capital gains, plus up to $3,000 a year of ordinary income, with the rest carried forward. Proving worthlessness in the right year matters, and UK administration can make the dates unclear.

PFIC risk with early-stage companies

A foreign company is a PFIC if 75% or more of its income is passive, or 50% or more of its assets produce passive income. A seed-stage company that has just raised money and holds it in the bank can fail the asset test until it starts spending the money on its trade. There is a start-up year exception, but it has conditions. If a holding is a PFIC, gains are taxed under punitive default rules unless an election is made in time. Form 8621 may be needed each year.

Form 5471 and the CFC rules

Most EIS investments are well below 10%, so Form 5471 does not apply. Founders and angels with 10% or more, or a group of US investors who together own more than half the company, can trigger Form 5471. In some cases the CFC income rules apply too. Those rules were reshaped from 2026 under the net CFC tested income regime.

EIS funds and nominee holdings

Many people invest through an EIS fund that buys shares in several companies for them. For US purposes each company is a separate holding, with its own basis, holding period and PFIC test. Form 8938 may require the holdings to be listed, and the fund's annual statements rarely give US-ready figures.

How we approach it

We report EIS and SEIS claims on the UK return. Then we model the US effect: the lost UK tax credit in the investment year, the US tax on any exit, and the PFIC and Form 5471 questions for each company. Please tell us about every source of income and every investment, in both countries, so we see the complete picture. TaxStone is not authorised by the FCA and does not advise on whether to invest or which companies to back. We cover the tax implications only, and all our work is done by email.

Sources

• HMRC, Venture Capital Schemes Manual (VCM) and helpsheets HS341 (EIS) and HS393 (SEIS)
• GOV.UK, "Enterprise Investment Scheme: income tax relief" and "Seed Enterprise Investment Scheme: income tax relief"
• Internal Revenue Code section 1202 (qualified small business stock: domestic C corporations only)
• Internal Revenue Code sections 1291 to 1298 (PFIC rules) and section 1298(b)(2) (start-up exception)
• IRS, Form 5471 and Form 8621 instructions
• US-UK Income Tax Treaty (2001), Articles 13 and 24