Venture Capital Trusts

The 30% income tax relief that defined VCTs for 30 years was cut to 20% on 6 April 2026, the first reduction since Venture Capital Trusts were introduced by the Conservative government in the Finance Act 1995. The cut arrived alongside EIS reforms and a new British Business Bank direct investment mandate, as part of a package the government projects will unlock approximately £100m of additional annual investment in early-stage UK companies.

VCTs are listed companies that pool retail investor capital and deploy it into portfolios of qualifying small businesses. Investors subscribe for shares in the trust, not the underlying companies, and have historically received three layers of tax advantage: 30% income tax relief on investments up to £200,000 per year (held for at least five years), tax-free dividends, and no capital gains tax on disposal. The relief was introduced to compensate for the higher risk of investing in small, early-stage companies. Major VCT managers include Octopus Investments, Draper Esprit, and Albion Capital.

The reduction to 20% is significant because the relief premium over the Enterprise Investment Scheme is now narrower. VCTs historically attracted investors seeking the same qualifying companies as EIS but with the diversification of a trust structure. Critics argue the cut undermines a programme that has channelled billions into UK growth companies since 1995; the government frames it as a rebalancing that redirects capital toward the highest-priority sectors through reformed EIS limits.