VCTs are set to remain a firm fixture in financial planning, even with the changes to the tax treatment from April, which were announced – unexpectedly – in the Budget. Greater taxation weighs heavily on the minds – and pockets – of investors, so ways to grow wealth and mitigate tax bills are essential – and very welcome.
So what is the VCT landscape as we head into the 2026 tax planning cycle – and what do you need to know to be prepared?
VCTs provide essential growth capital and support to help some of the UK’s most exciting companies. To counter the increased risk of investing in earlier stage businesses, VCTs currently come with 30pc tax relief, plus tax-free dividends. However, the most recent budget brought the news of government plans to cut upfront tax relief on VCTs from 30% to 20% in April.
While there is concern that cutting tax relief will undermine VCTs’ ability to support scale-up businesses and harm the government’s growth ambitions, the investment case remains strong.
VCT investing comes with higher risks, of course, with businesses being small, young, and arguably more likely to fail. Yet advisers can take comfort that research by Wealth Club1 shows VCT-backed companies tend to be much faster-growing than larger, established FTSE-listed companies.
Its analysis of VCT portfolios found that over a third (36.8%) of investments are in businesses that have grown revenues by more than 25% year on year. By contrast, only a tiny minority (2.1%) of the FTSE All Share constituents, excluding investment trusts and insurance companies, have achieved that.
The new tax year will also bring some positive changes, with rules being relaxed to allow more companies to earn qualifying status for VCTs.
Chancellor Rachel Reeves doubled the maximum size of companies eligible for VCT investment, from £15m to £30m. This is to allow VCTs to support larger, more established scale-up companies. This will also mean that companies will remain eligible for VCT funding for longer, allowing a VCT to continue to back its portfolio companies as they progress through their growth journey – not just as a start-up or very early-stage business – and thereby providing long-term investment returns and tax-free dividends.
From April companies will be able to raise more capital, as the Chancellor increased the maximum investment for a VCT into an individual company from £10m to £20m – and up to £40m in “knowledge intensive” companies.
With income tax thresholds frozen, more individuals are being pushed into higher or additional rate tax bands. While some VCTs deliver an annual dividend of between 5% and 7%, some pay out more and these tax-free VCT dividends are paid without increasing taxable income.
As ever, some VCT offers fill fast – so it helps to have discussed the options with clients and be ready to invest. The Unicorn AIM VCT offer was 35% full, less than a week after opening.
Investee company success stories bring the benefits VCTs deliver to growth businesses and thereby the broader economy, to life for investors. Hasgrove is a good example.
A recent, record exit for the Unicorn AIM VCT, Hasgrove is a digital communications services group with subsidiaries offering a broad range of digitally focussed marketing and technology services. Having owned it for over 20 years from an initial investment of £2m, it grew to £88m before it was partially sold to funds managed by Castik Capital in late 2025. The sale led to a £50 million special dividend, equivalent to 23.0p per ordinary share, due to VCT shareholders.
Quantum Base, listed on AIM in April 2025, is an excellent example of the innovation achieved by some UK universities. Founded as a spin-out from Lancaster University, it manufactures unbreakable and non-replicable, invisible authenticity tags that can be applied to a vast array of products from alcohol to designer goods, significantly mitigating counterfeiting. With applications across so many sectors, the relative simplicity of use and the incredibly IP rich nature of the business the potential for growth is excellent.
VCTs support British enterprise and growth businesses, which have the potential to pay out generous tax-free dividends over time, so although a budgetary change may have brought some unexpected uncertainty for the sector via the lowering of the upfront rate of relief – with overall tax levels at record highs, the 20% relief on income tax from next year and going forward still feels attractive. We believe the relaxing of the qualifying rules and doubling of the maximum investment will drive the opportunity for VCTs and investors alike.
1 Source: Wealth Club, October 2025
This piece featured in the latest issue of Tax-Efficient Investment (TEI) Magazine, which you can read here!
About Fraser Mackersie
Fraser joined Unicorn in 2008 and is co-manager of the Unicorn UK Income Strategy, UK Smaller Companies & UK Growth Funds as well as collaborating with the Investment team across the OEIC, AIM VCT, AIM IHT Portfolios and Segregated Accounts.
