As we sit firmly in ‘tax season’, it is an opportune time to pause for a few moments and reflect on how we arrived at this point. Paul Wilson, Director and Managing Partner at TEI Magazine suggests that there are clear messages that the patient capital sector is valued, stable and part of the government’s long‑term investment framework, while advisers also face a short window to utilise the current 30% income tax relief on VCTs before it falls for the 2026/27 tax year.
This period provides an opportunity to begin laying the foundations for 2026/27 investment allocation and portfolio rebalancing, particularly as the scope of incentives now extends to larger and slightly more mature companies than before.
Now is the ideal time for planning allocations and developing informed, independent thought leadership with clients.
Thinking by Tax Year
Financial advisers tend to think and act in tax years, with 6 April firing the gun on a new year and the following 5 April acting as a hard deadline to complete allocations. This year, a relatively late Budget announced a one‑third reduction in the upfront income tax relief for VCTs, effective from 6 April, accentuating the rush to complete VCT investments ahead of the looming deadline.
For investors, getting ahead of the pending reduction in VCT income tax relief is vital. Research and execution are therefore key, and resources such as platforms help make this process seamless and integrated.
For many years, the patient capital market has benefited from a period of relative stability. Most policy changes have confirmed and incrementally enhanced the volume and scope of these products. There have, of course, been adjustments designed to restrict the potential for abuse, but broadly speaking the macro landscape has remained benign for investors, advisers and fund managers alike.
The 2023/24 extension of the maximum amount a company can raise under SEIS from £150,000 to £250,000, alongside the extension of the trading age requirement to under three years rather than two, had a noticeable allocation‑displacement effect. Approximately 12% less capital was invested into EIS, with funds instead diverted into the more generously incentivised SEIS opportunities available at the time.
This serves as clear evidence that markets respond to incentives. Overall, however, the net effect has been increased incentive to invest and an expanded scope for doing so. This remains a growth sector.
Behind the Budgets
The change of government in July 2024 created a degree of apprehension ahead of the October 2024 Budget, which was extensively ‘market‑tested’ through the leakage of potential changes.
This suppressed activity in a small but material way. In the event, as far as patient capital was concerned, the Budget itself proved relatively benign, focusing on stability and confidence by extending the sunset clauses by a further ten years and reinforcing incentives to offset the increases in capital gains tax (CGT) rates announced elsewhere in the statement.
The November 2025 Budget was again subject to extensive leakage, with more than 15 potential changes trailed in the seven weeks leading up to it, once again dampening activity. The Office for Budget Responsibility’s accidental early publication of the Budget concluded a period during which Budget purdah had been comprehensively devalued. While speculation may assist in shaping policy, it is rarely helpful for business planning.
The most significant recent change to patient capital has been the announcement that VCT income tax relief will reduce from 30% to 20% from 6 April 2026.
This is likely to provide a short‑term boost to the current tax season as investors bring forward allocations that might otherwise have been made in the next tax year. However, the extent to which this change displaces investment that would otherwise have flowed into EIS or SEIS during the current year remains uncertain.
Looking ahead, there is hope that, with two tax‑raising and politically challenging Budgets now behind us, renewed confidence in the policy framework will encourage a more constructive approach to investment. Alongside the enhanced relative value of CGT benefits across all three products, this could result in a greater overall allocation of capital to the sector. As noted earlier, incentives matter, and aside from the reduction in VCT relief, the government has largely delivered them.
Looking Ahead to 2026/27
So where does this leave us as we approach 2026/27? The headwinds of conflict in Ukraine and Gaza, energy‑price shocks, and shifts in US political and economic policy appear to have at least a reasonable chance of moderating. Recent geopolitical theatre, including developments around Greenland at the time of writing, has been handled with relative pragmatism as policymakers adapt to a changing global environment. In short, the world is adjusting, and a return to more familiar business conditions may be emerging.
Against this backdrop, the growth potential associated with AI suggests that we may be at the beginning of a new expansionary phase. Patient capital is well placed to support this transition, offering tax‑efficient shelter for client investments, the potential for attractive returns, and vital funding for the UK’s start‑up and scale‑up ecosystem.
For those who lend credence to Strauss–Howe generational theory, with its 80‑year generational cycles, or to 40‑year Kondratiev cycles, both frameworks point towards a period of transition around the present time. Whatever perspective one adopts, these are undeniably interesting times, and periods of change have historically been fertile ground for opportunity.
By Paul Wilson, TEI Magazine
This piece featured in the latest issue of Tax-Efficient Investment (TEI) Magazine, which you can read here!
About Paul Wilson
Paul is a Director and Managing Partner at Clifton Media Lab, the organisation which sits behind TEI Magazine, as well as its sister titles IFA Magazine and Wealth DFM.
Paul is a serial entrepreneur who has built and sold a regional IFA business and an M&A business, as well as founding and successfully disposing of businesses in other sectors such as advanced materials, construction and development.
Within the advice sector, Paul has worked as an adviser, progressing via compliance and, unusually, also via sales management to the senior management of a large national advice firm before co-founding a regional IFA firm. On disposal of that, he assisted in the founding of IFA Magazine, later taking that over.
