Jon Prescott, Partner at PXN Investments, explores why the April 2026 rule changes are reshaping adviser conversations on Venture Capital Trusts.
From 6 April 2026, income tax relief on subscriptions into VCT qualifying shares will reduce from 30% to 20%. The trade-off for managers is access to a wider pool of high-growth small businesses. The combination of tighter relief and an expanded investable universe makes timing, manager selection and portfolio construction matter more than ever.
Understanding the changes
The policy story has two moving parts. On top of the reduction of income tax relief on new VCT subscriptions, the reforms increase the limits for companies raising capital via VCTs and EIS — effectively extending the runway for the size and stage of businesses that can qualify.
The annual investment limit per investee company will rise from £5m to £10m (or from £10m to £20m for knowledge-intensive companies), while the lifetime company investment limit rises from £12m to £24m (£20m to £40m for knowledge-intensive companies). Gross assets limits also increase from £15m/£16m to £30m/£35m before and after a share issue.
For clients, the story is straightforward: less upfront relief, but more scope for managers in the growth companies they can back. That shifts the conversation from ‘should we use VCTs at year-end?’ to ‘does a higher-risk allocation to UK growth still fit the plan — and which manager is best placed to deliver?’
If demand comes sooner ahead of the relief reduction, advisers may need to think earlier about capacity, pacing, and how VCT allocations fit alongside other planning priorities.
A 10 percentage-point reduction in upfront relief inevitably changes the mental calculations. When relief is lower, the ongoing features of the VCT regime become more prominent: tax-free dividends and no CGT on disposal (subject to scheme rules).
This is where advisers can add real value by separating three ideas that often get blurred together. Relief is not return — upfront relief improves the net cost of entry, but it doesn’t remove investment risk. Additionally, dividends are not guaranteed – outcomes depend on portfolio performance, realisations and manager policy. And time horizon matters, clients must be comfortable with liquidity constraints and the possibility of capital loss.
Many VCTs aim to distribute returns primarily through dividends funded by portfolio income and realised gains. That’s one reason dividend income is becoming a bigger part of the conversation — particularly for clients who value tax-efficient income alongside growth.
The evolving landscape
The old caricature of VCTs as a niche tool for high-net-worth investors is increasingly out of date. HMRC statistics (2023-24) show that VCT participation spans a wide range of investors and contribution sizes. Around four-fifths of VCT investors claim relief on £50,000 or less.
Several factors explain this broadening. Frozen thresholds are bringing more clients into higher-rate tax bands. Tax-free income has become more valuable as dividend and savings allowances have tightened. And inheritance planning is moving closer to the centre of many clients’ objectives.
Planning conversations are becoming more holistic, with clients considering income, growth and estate outcomes together. Within that context, VCTs are a higher-risk, secondary allocation — potentially useful for suitable clients once core needs are met. Suitability remains the top priority.
None of that makes VCTs suitable for everyone — but it explains why they appear in more mainstream advice discussions than a decade ago.
Manager selection
Separate VCTs are not interchangeable. Two clients might each invest in ‘a VCT’ and have very different outcomes depending on manager capability.
There’s a clear contrast between a manager running a concentrated portfolio of 15 companies with deep sector expertise, versus one spreading capital across 40 plus investments with lighter-touch involvement. Neither approach is inherently right – but they carry different risk profiles.
If the investable universe expands towards larger, later-stage opportunities, dispersion between managers may become more pronounced. Advisers may want to look more closely at how managers find opportunities, how often they win competitive deals and what differentiates them from peers. Understanding their approach to pricing, risk management, portfolio diversification and post-investment support matters, as does their track record on delivering liquidity and managing buybacks.
Looking ahead
For advisers considering VCT allocations ahead of April 2026, planning matters. Demand may be pulled forward, and many offers have finite fundraising limits — leaving it too late may reduce choice.
Now is a natural moment to reconfirm objectives and suitability, ensuring clients understand what VCTs are and the conditions around relief, holding periods and the absence of guarantees.
Focusing on manager selection should be a priority. Outcomes are driven by underwriting quality and portfolio construction, not by the wrapper alone.
Beyond the immediate deadline, the more interesting question is what comes after expanded investment limits bring a new cohort of growth companies into scope. We may see VCT portfolios evolve, with different sector mixes, risk profiles and sharper differentiation between managers. This makes thoughtful manager selection and clear client conversations more important than ever.
This piece featured in the latest issue of Tax-Efficient Investment (TEI) Magazine, which you can read here!
By Jon Prescott, Partner at PXN Investments
Jon is a Partner at PXN Investments, overseeing the group’s product and distribution strategy. He spent over 16 years at AJ Bell working in the distribution function with particular focus across pension and platform.
Prior to joining Praetura in 2018, he spent five years at Octopus Investments as Area Sales Director leading the sales and distribution strategy across the North of England, Scotland and Northern Ireland. Jon brings more than 30 years of financial services experience with over 10 years working in the tax efficient investment arena.
