A year after the UK government extended the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) reliefs to 2035, investors and founders are beginning to see the long-term impact. With higher capital gains tax (CGT) now bedded in, liquidity in private markets still constrained, and specialist fund managers gaining prominence, EIS and SEIS have become more central than ever to Britain's start-up ecosystem.
A Year of Certainty
Twelve months ago, Chancellor Rachel Reeves confirmed that the EIS and VCT "sunset clauses" would be pushed out to April 2035, following European Commission approval. At the time, it was hailed as a vote of confidence in the UK's ability to foster world-class innovation.
Now, in September 2025, that decision has delivered what many hoped for: stability. Entrepreneurs, fund managers, and investors have had a year to operate with certainty about the longevity of tax-advantaged structures. In a market still adjusting to tighter fiscal policy, that clarity has been invaluable.
EIS as an Antidote to Higher CGT
The October 2024 Budget's CGT hike continues to cast a shadow. While the rise was smaller than initially feared, it has changed investor behaviour. For many private investors, the focus has shifted from simply managing tax liabilities to actively seeking ways to offset them.
This is where EIS and SEIS have stepped in:
- EIS offers 30% income tax relief, CGT deferral, and inheritance tax exemptions — a compelling mix in today's tax environment.
- SEIS, with its 50% CGT reinvestment relief, has been particularly popular in 2025. The increase in its investment threshold to £250,000 has unlocked more early-stage capital at a time when founders need it most.
The result has been a noticeable increase in private appetite for tax-advantaged investing. Several fund managers report stronger flows into EIS/SEIS vehicles compared with 2023, as investors look to soften the impact of CGT while maintaining exposure to UK innovation.
Private Market Liquidity Still Tight
If one theme has dominated 2025 so far, it is liquidity — or rather, the lack of it. IPO markets remain sluggish, secondary sales are sporadic, and private equity exits have slowed. This has left many investors with capital tied up longer than expected.
Against this backdrop, EIS and SEIS schemes have provided a practical release valve, ensuring that capital continues to recycle into the ecosystem. By channelling money into earlier-stage ventures, these schemes are helping to partially offset the wider bottleneck in private markets. For founders, that has meant access to growth funding at a time when institutional cheques have been harder to secure.
Specialist Fund Managers on the Rise
Another trend emerging in 2025 is the rise of specialist fund managers. As competition intensifies, investors are looking for differentiation — not just who can deploy capital, but who can add the most value.
Deeptech is a clear example. Founders in areas such as quantum computing, aerospace, and advanced materials have historically struggled to attract S/EIS money, given the complexity of their business models. This year, however, several new specialist EIS funds have entered the market, targeting knowledge-intensive companies with both capital and tailored expertise.
The effect has been twofold:
- More deeptech start-ups are gaining access to early-stage capital.
- Investors are benefiting from managers with genuine domain knowledge, reducing the risk of misaligned expectations.
Knowledge Intensive Funds: Still Scarce
Despite the positive momentum, one area of concern remains: Knowledge Intensive (KI) funds. Designed for R&D-heavy companies with long time horizons, KI funds are still limited in number. While demand has grown, the supply of approved funds has not kept pace.
Without further government or institutional support, this gap could leave some of the UK's most promising science-driven ventures underfunded. For now, generalist and specialist S/EIS funds are bridging the gap, but the challenge is likely to persist into 2026.
Market Conditions: A Rebalancing, Not a Recovery
It's worth remembering that the early-stage market is still recalibrating. Deal volumes remain lower than the 2021–22 peak, and while the post-election bounce in sentiment has helped, fundraising remains selective. Only the strongest propositions — often in AI, fintech, or defence — are closing rounds quickly.
For many start-ups outside the top decile, capital remains difficult to secure. That makes the stability of EIS and SEIS all the more critical. These schemes are ensuring that even as venture capital firms tread cautiously, there is a consistent pipeline of private investors backing British innovation.
UK Investor Watchlist: Key Themes for 2025–26
Schemes in Focus
- EIS Extension – providing stability through to 2035, anchoring long-term planning.
- SEIS Popularity – higher thresholds and 50% CGT relief are driving adoption.
- VCT Resilience – remains an important complementary structure, though less flexible than S/EIS.
Sectors to Watch
- AI & Automation – strong pipeline of UK-founded start-ups building on the AI boom.
- Fintech – post-Revolut, second-generation challengers in wealthtech and payments are emerging.
- Defence & Deeptech – specialist funds are opening new pathways for capital into advanced R&D.
Risks & Challenges
- Liquidity constraints – IPO and M&A markets remain subdued, limiting exits.
- Funding concentration – capital continues to flow disproportionately to top decile companies.
- Policy execution – scaling KI funds remains a weak spot in the ecosystem.
Conclusion: A Year of Progress, But Work Remains
Looking back from September 2025, the extension of EIS and VCT reliefs to 2035 stands out as a defining moment. It has provided the clarity investors craved and the stability entrepreneurs needed. In a year marked by higher taxes and market bottlenecks, the schemes have been instrumental in keeping capital flowing.
But challenges remain. The lack of liquidity in private markets, the scarcity of KI funds, and the ongoing selectivity of venture capital mean the environment is far from easy. For investors, the message is to remain active but discerning — leaning on tax-advantaged structures and specialist expertise to navigate the next phase.
The UK has reaffirmed its commitment to start-up growth. The task now is to ensure that stability translates into long-term global competitiveness.