Drop in tax relief on VCTs may affect economic growth
Newsletter issue – June 2026
The Chancellor reduced income tax relief on Venture Capital Trusts (VCTs) from 30% to 20%, effective 6 April 2026. Many have argued that despite political rhetoric about boosting growth, this tax change (amongst others) actively undermines early-stage businesses. They say that it cuts a lifeline for British start-ups and will cost investors thousands.
VCTs are listed funds that invest in young, unquoted companies. They are a crucial source of capital for early-stage businesses. They have raised £4.3bn in the last five years, according to HMRC. Past beneficiaries include Graze, Virgin Wines, and Zoopla.
The annual VCT investment limit has doubled to £10m, intending to help companies scale beyond the start-up phase. But cutting the tax relief at the same time is seen as contradictory - "giving with one hand and taking with the other." The last time VCT relief was cut - from 40% to 30% in 2006 - fundraising dropped by two-thirds year-on-year. Wealthier investors may redirect their money elsewhere, for example EIS/SEIS (offering 30-50% relief), pensions or mainstream equity income funds.