The Budget set out plans to cut income tax relief on VCTs from 30% to 20% from April 2026.
Wealth Club, the UK’s leading VCT broker, has surveyed its clients* to understand what effect this change will have on investor behaviour;
- 41.6% of investors said they won’t invest in Venture Capital Trusts (VCTs) once the changes are introduced, 43.5% will invest less
- 96.4% would like the government to reconsider the cut in VCT relief
- 85.6% think overall investment in start-ups and scale-ups will decrease
- Only 13% of VCT investors expect to invest more in other venture capital schemes (EIS or SEIS)
*The survey was completed the week commencing 01/12/2025, and received responses from 511 high net worth and sophisticated investors, including 474 VCT investors.
Alex Davies, CEO and Founder of Wealth Club, said, “VCTs have been a crucial source of funding for the UK’s small and growing companies over the last 30 years. However, UK start-ups should prepare for a funding drought after the government’s decision to water down income tax relief.
Two fifths of Wealth Club clients expect to invest less in VCTs under the new rules, another two fifths say they won’t invest anything at all.
That should not be a surprise. The last time VCT relief was cut by 10% fund raising fell by 65% year-on-year. The last time VCT income tax relief was set at 20%, way back in 2003/04, the industry raised just £70 million. That compares with nearly £900 million raised in 2024/25.
We are seeing a rush of investors looking to get in before the tax rules change, which is likely to drive a race to access the best VCTs before they fill up. However, we expect VCT investment to fall off dramatically next tax year. That is bad news for the hundreds of small UK companies that rely on VCTs for funding and is frankly unforgivable for a government that claims to be all about economic growth.”
Wealth Club’s Three Top VCT picks with remaining capacity
Baronsmead VCTs
“The Baronsmead VCTs are often the go-to pick for new VCT investors. The trusts’ portfolio is well diversified, with dedicated teams covering both AIM listed and private companies. The trusts have nearly a third of their money invested in Gresham House managed mainstream equity funds – an unusually large allocation to a comparatively lower risk asset class for a VCT. That diversity should help mitigate the volatility you see in more concentrated VCTs, though it might also reduce the potential for really outsized returns.
The Baronsmead VCTs also have one of the most generous dividend policies in the sector, targeting a yield equal to 7% of NAV a year – and has hit that target for each of the last ten years.
It’s not hard to see why these VCTs are perennially popular.”
British Smaller Companies VCTs
“The British Smaller Companies VCTs target business services companies, which is a pretty deep pond to fish in. The strategy is clearly paying dividends, making BSC and BSC2 the second and third best performing VCTs over five years respectively.
The current crop of investments includes some cracking companies, including financial adviser review platform Unbiased, which is expanding rapidly in the US, and digital special effects studio Outpost VFX, which has worked on projects like Captain America and Rings of Power.
Given the broad sector focus of the VCTs, they often form a core holding for VCT investors – with a strategy that emphasises company selection and portfolio support rather than deep expertise in off the beaten track sectors.”
Triple Point Venture VCT
“Triple Point was the first VCT out of the blocks this tax year. That seems appropriate, since getting in early is what the Triple Point Venture VCT is all about.
Manager Seb Wallace aims to invest earlier in a company’s corporate life than many other VCTs. At this stage there’s less competition, resulting in lower valuations. Investing at an earlier stage is higher risk, but the VCT seeks to mitigate that by making lots of smaller bets before doubling down on the winners. Having launched in 2018 the VCT is now starting to see some of the early bets pay off. It sold credit reference group Credit Kudos to Apple a few years ago for a very healthy 5.2x cost, and other top holdings like energy data company Modo Energy and MRI booking platform Scan.com are showing substantial gains after attracting funding from other investors.
We think the VCT offers investors a distinctive, well thought out approach – with a manager who is starting to develop an appealing track record.”
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