The income tax relief available on VCTs will be cut from 30% to 20% from April 2026.
Chancellor Rachel Reeves made this announcement today during the Autumn Budget (26 November).
Wealth Club CEO Alex Davies explained that when venture capital trusts income tax relief was cut from 40% to 30% in 2006/07, funds raised by VCTs fell 65% year-on-year.
Davies predicts 2026/27 “will be no different, with smaller companies facing a drought in funding in the years ahead.”
Association of Investment Companies (AIC) chief executive Richard Stone said: “The VCT scheme invests billions of pounds in up-and-coming UK companies. Cutting upfront tax relief on VCT shares from 30% to 20% undermines the incentive to invest in VCTs.
“Individuals and advisers will be less willing to support high-risk young companies that will struggle to find funding from other sources. Far from nurturing economic growth as the Chancellor wants, it will cut off vital funding for ambitious, growing companies.”
Still, Davies does believe this rule will result in a spike for VCT investment in the short term.
“Investors will likely pile in before the end of year deadline, and popular VCTs will fill up even faster than usual. It really will be a case of buy now while stocks last.”
The chancellor also announced that she would be reforming the UK’s venture capital schemes, allowing the Enterprise Investment Scheme (EIS) and VCTs to invest more money in more mature businesses.
This was a change the Venture Capital Trust Association was campaigning for.
VCTs were introduced in 1995 and are investment vehicles that were set up to promote investment in small UK businesses that meet certain criteria.
