SEIS and EIS for Loss-Making Biotech: A UK Funding Guide

By Steve Livingston FCA, founder of IP Tax Solutions. Technical sources reviewed: 21 September 2026.

A loss-making or pre-revenue biotech can qualify for SEIS or EIS. Lack of sales is not itself a bar: qualifying research and development can be a qualifying business activity. The company must still meet the scheme's other conditions, including financial health, trade and group requirements, use of money and risk to capital.

For founders, the work is to connect the science and funding milestones to the statutory tests. For investors, the availability of income tax relief, capital gains treatment and eventual loss relief must each be checked rather than treated as one guaranteed package.

Can a company qualify before its first sale?

EIS recognises carrying on a qualifying trade, qualifying preparations to trade and qualifying R&D as distinct business activities. R&D from which a qualifying trade is intended to be derived can fall within the rules even when commercial sales remain some way off. SEIS has its own equivalent qualifying-business-activity provisions, tied to a new qualifying trade. EIS s.179 and SEIS s.257HG.

The company's trading purpose and its qualifying business activity are related but separate questions. Pre-revenue does not invariably mean pre-trading, and an R&D tax relief claim does not automatically establish SEIS or EIS eligibility. Identify what the company is doing, which entity is doing it and the trade intended to result.

For a biotech, the application should explain the development programme, ownership of the IP, use of clinical or research contractors, regulatory milestones and proposed commercialisation. If the intended model is licensing, consider the relevant intangible-assets exception rather than assuming that all future royalties will qualify. ITA 2007 s.195.

Our SEIS eligibility guide sets out the broader starting conditions.

Risk to capital in a clinical development programme

SEIS and EIS require long-term growth objectives and a significant risk of capital loss exceeding the net investment return. The assessment includes the available income tax relief and all relevant circumstances at issue. High scientific risk is relevant, but it does not dispense with review of the investment arrangements. SEIS s.257AAA and EIS s.157A.

Explain how the investment develops the business beyond a single funding milestone. Relevant measures may include development progress, scientific capacity, manufacturing capability, commercial partnerships and IP development. The business plan should describe the risks of technical failure, delays, additional funding needs and commercial competition without overstating either certainty or danger.

Review redemption rights, liquidation preferences, side letters, exit arrangements and other protections separately. A commercially familiar term may still conflict with a scheme condition. Equally, ordinary commercial contracts or outsourcing do not automatically constitute capital preservation. HMRC's assessment factors require consideration of the whole position.

Knowledge-intensive status

Knowledge-intensive company status can extend relevant EIS limits, but it must be established for the investment. A biotech label, scientific workforce or high expenditure is not a substitute for the statutory calculation.

The operating-cost alternatives require R&D or innovation expenditure of at least 15% in one of the relevant three years, or at least 10% in each of those years. The company must also satisfy the innovation condition or skilled-employee condition. The relevant periods, group expenditure and definition of qualifying staff need attention. ITA 2007 s.252A.

The innovation route concerns relevant IP creation and the business expected to result within ten years. The skilled-employee route includes the prescribed qualifications, direct engagement in R&D or innovation and a continuing FTE proportion throughout Period B. A workforce containing many PhD holders is useful evidence, but not the complete test.

A qualifying knowledge-intensive company has a ten-year initial investing period rather than the standard seven years. The legislation also permits the relevant alternative based on annual turnover reaching £200,000. That is an alternative way of determining the period, not a general reset available every time the company restructures. A pre-revenue company's first-commercial-sale clock may not yet have started. HMRC KIC guidance.

SEIS must be issued on an earlier day than EIS

For a mixed raise, the SEIS shares must be issued on an earlier day than the EIS shares. Issuing them a few minutes earlier on the same day does not satisfy the rule. The restriction also covers prior or same-day VCT investment and relevant qualifying subsidiaries. ITA 2007 s.257DK.

Apply this to the legal share issues, not simply the order in which investors sign documents or transfer money. Advance subscription agreements and conversion mechanics must be checked against the actual issue dates and the separate qualifying-share conditions. A convertible loan or an instrument described as a SAFE should not be assumed to qualify merely because it will eventually become shares.

There is no current requirement to spend 70% of SEIS funds before issuing EIS shares. That old sequencing rule is distinct from the SEIS1 filing condition. Our multi-round funding guide explains the difference.

Funding limits and financial health

For investments from 6 April 2026, most EIS companies have annual and lifetime limits of £10 million and £24 million, rising to £20 million and £40 million for knowledge-intensive companies. The general gross-assets limits are £30 million before and £35 million immediately after the share issue. Lower limits remain for specified Northern Ireland companies, with further restrictions relevant to use of money in such companies. Current HMRC EIS guidance.

SEIS retains its separate £350,000 pre-issue gross-assets limit, fewer-than-25 FTE employee test and £250,000 funding-headroom rules. Existing funding and relevant aid must be considered alongside trade history. Large biotech balance sheets can make SEIS unavailable even when the science is early-stage.

Both schemes have a financial-health requirement at the issue date: EIS s.180B and SEIS s.257DE. Loss-making is not synonymous with being in difficulty. Assess the particular company's position, including the applicable initial-investing-period rules and properly supported adjustments. Do not assume a proposed tax-advantaged raise automatically cures the problem. Our financial-health article explains this assessment.

What if the biotech fails?

A genuine commercial failure does not necessarily withdraw existing investor relief. EIS and SEIS contain provisions protecting the trading requirement in defined administration, receivership, winding-up and dissolution circumstances. These provisions do not waive all the other conditions or cure a defect that existed when shares were issued. EIS s.182 and SEIS s.257DB.

Loss relief is a separate analysis. EIS relief attributable to shares can satisfy the relevant qualifying-shares route for income-tax share loss relief, but the investor still needs an allowable loss, an appropriate disposal and a valid claim. SEIS shares require consideration of the separate qualifying-trading-company conditions. ITA 2007 s.131 and s.134.

A negligible-value claim may permit a deemed disposal while the shares still exist. The value must be negligible and the statutory conditions must be met; it is not invariably a nil-value disposal. An earlier effective date within the permitted period also needs the conditions to have been satisfied then. TCGA 1992 s.24.

For illustration, an investor with a £100,000 EIS subscription who retains £30,000 income tax relief may have a £70,000 allowable loss on total failure. If that loss qualifies for income-tax relief and is fully relieved at 45%, the further saving is £31,500, leaving a £38,500 net cost. That outcome depends on the investor's taxable income, applicable rates, retained relief and valid claim. It is not a promise of repayment to every investor.

Read our SEIS loss-relief guide and SEIS capital gains guide for the separate investor questions.

Frequently asked questions

Can the company claim R&D relief as well?

Potentially, yes. R&D tax relief and venture capital reliefs have separate conditions. Check the applicable R&D regime, costs, funding and contractual arrangements rather than assuming one approval establishes the other.

Can a founder subscribe under SEIS?

Potentially, but the historic substantial-interest test, associates and other investor conditions matter. Current ownership below 30% is not enough if an earlier non-excepted holding breached the SEIS test. Directorship alone is treated differently from ordinary employment.

Does advance assurance protect the whole investment?

No. It concerns the company and proposed investment on the disclosed facts, not every investor's eligibility or subsequent compliance. Follow the application guide and plan the later SEIS1 compliance statement.

Discuss your biotech funding plan

Contact IP Tax Solutions about the development programme, group structure, funding stages and proposed investor terms. We can agree the scope of an eligibility and transaction review before the round closes.

This article provides general information. Company, investment and investor conditions require separate consideration on the facts.