Cuts to venture capital trust (VCT) income tax relief risk undermining growth and cancelling out the positive impact to UK businesses from changes to the Enterprise Investment Scheme, says Rathbones.
The Chancellor announced an expansion to the EIS in the Autumn Budget, doubling investment limits and widening eligibility from April 2026.
However, Rathbones has warned that a reduction in VCT tax relief from 30% to 20% will make these vehicles far less attractive, discouraging investors and limiting the flow of patient capital that many early stage firms rely on.
EIS investments, which are made directly into qualifying companies, carry higher risk but now offer relatively more attractive tax benefits. In contrast, VCTs, which spread risk across a portfolio, may see reduced appeal, Rathbones said.
Adam Greaves, senior investment director at Rathbones, said: “The Chancellor’s decision to double EIS limits is a real boost for UK growth businesses. It gives investors more scope to support companies through their scale-up journey.
“However, the cut in VCT relief is a concern. VCTs have been a cornerstone of early-stage funding, and any reduction in their appeal could leave promising firms short of capital; it could undermine efforts to strengthen the UK’s entrepreneurial ecosystem.
“If the Government is serious about stimulating growth among UK businesses it needs to have a holistic approach and not give with one hand and take with the other.”
With the changes set to take effect in April 2026, Rathbones is predicting a surge in demand for VCT subscriptions over the coming months to take advantage of the higher rates of relief.
Lucy Heath-Thompson, financial planner at Rathbones, added: “VCT offers will fill up rapidly ahead of next April. Many providers offer early bird discounts, and allocations are often snapped up within weeks; but people need to give thought as to whether they are the right investment for them. If that is the case, you need to act quickly to secure the current level of tax relief before it drops.”
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