Investors wishing to invest in venture capital trusts (VCTs) before the end of the tax year may need to act swiftly. Several popular offers are already at risk of selling out well before April, following Budget changes that will reduce upfront income tax relief from 30% to 20% from 6 April 2026. Peter Hicks, research analyst at Chelsea Financial Services, shares two VCTs which investors should be considering.
In November, Chancellor Rachel Reeves confirmed the cut, prompting a surge in demand from investors keen to secure the higher rate while it remains available.
The urgency is understandable. While VCTs will continue to offer tax-free dividends and capital gains, the reduction in upfront relief shifts the emphasis firmly onto manager quality. With a smaller tax cushion, investors need proven exit discipline, sensible fee structures and genuine alignment of interests to drive returns.
Against that backdrop, two managers stand out for different but complementary reasons. Pembroke exemplifies alignment and shareholder-friendly charging, while Gresham House combines scale, momentum and an enviable realisation record.
Each reflects the themes that matter most in today’s environment: disciplined capital allocation, consistent cash returns and a clear focus on delivering value beyond the tax incentives alone.
Pembroke VCT
Launched in 2013, Pembroke has built assets under management to a sizable £260 million. A robust stream of dividends have also been paid along the way; its 5p annual dividend target, in place since 2021, has been consistently achieved. Noteworthy portfolio exits include the recent partial sale of experiential travel platform Secret Food Tours, generating a 5.3x return; and, in 2022, sustainable luxury womenswear brand ME+EM delivered an exceptional 16.2x exit.
There are many reasons to like this VCT, not least because of the exciting businesses they hold, a quarter of which are already profitable. Pembroke’s largest holding, Lyma, a consumer health-tech business, has become a major commercial success, and recently gained regulatory approval for use in the US.
However, the strongest argument for this VCT is the alignment of incentives with investors and investee companies. Where possible, Pembroke will commit capital alongside founders under the same investment terms.
Moreover, Pembroke does not charge performance fees on unrealised valuation gains. In other words, performance fees are earned when value is crystallised in cash, not on paper uplifts. This is an excellent approach and one that should be commended more loudly; Pembroke’s performance fee arrangements go against the grain of how most other VCTs structure their charges.
Manager Andrew Wolfson is also unapologetically pro-special dividend. When possible, the priority is to return capital back to shareholders. In tandem with their charging structure, this philosophy places shareholder outcomes front and centre, and is exactly what investors should demand as the tax tail becomes less generous.
Gresham House VCTs
Formally Mobeus, the Gresham House VCTs are among the most popular in the sector. Their £90m fundraise in September 2024 reached capacity in eight weeks. The track record has done the talking: Gresham House Income and Growth VCT 1 & 2 are the best performing in the AIC VCT sector over 10 years, delivering tax-free total returns of 136% and 162% respectively.*
Since March 2022, the VCT has made six highly-profitable exits, realising proceeds of £123m against a cost of £74m.** Achieving this against the harsh economic backdrop of recent years underlines the strength of the investment process, and proceeds have supported a stellar dividend track record that has frequently exceeded the new 7pc-of-NAV annual target.
This year’s raise was brought forward due to the upcoming reduction in income tax relief. Mobeus has made the correct decision – when relief was last cut, in 2006, VCT sales collapsed by 65%.
The rule changes accompanying the relief reduction – which broaden the qualifying universe and allow for larger scale-up investments – is a key positive that should not be overlooked. Whilst the more headline-grabbing reduction in income tax relief is disappointing, the underlying qualifying rules are constructive.
Whilst there is some merit to questioning Gresham House’s larger cash balance, that liquidity places it in pole position to support existing winners and capitalise on new opportunities as competitors retrench.
*Data sourced from theaic.co.uk as at 10/02/2026
**TER: Issue No 635, Feb 2026
