The 2026 tax season is almost here. Following the Budget changes announced in late November, this is likely to be an even busier period than usual for VCTs, as investors seek to commit as much capital as possible before the income tax relief reduces from 30% to the newly announced 20% from 6 April 2026.
How much of this additional 2025/26 investment represents capital that would otherwise have been invested in the following tax year, rather than reflecting genuine enthusiasm for tax efficient investing and the rapid expansion of the key sectors within it, will not become clear for some time.
However, the opportunity is here now. Equally present is the challenge for advisers, determining which VCT funds client investments should be allocated to ahead of the deadline. Both hard and soft information are critical to making informed recommendations.
This challenge is amplified this year by the significant buzz surrounding AI opportunities, which is placing pressure on advisers to divert some capital away from more traditional EIS and VCT investments. That enthusiasm is tempered in some quarters by concerns that a bubble may be forming within this particular technology vertical.
Avoiding investment in the sector altogether, given its potential for outsized returns among eventual winners, would be considered ‘courageous,’ as Sir Humphrey Appleby might have observed. Predicting a market correction requires not only being correct about the occurrence of a sustained downturn, but also accurately timing it. As ever, diversification remains the more pragmatic approach.
One of the enduring advantages of managed funds is that risk is diversified at the fund level, with experienced managers focused on due diligence and identifying the strongest opportunities. More than ever this year, clients will rely on their advisers to help allocate capital wisely, selecting the most appropriate funds and managers for their objectives.
It is perhaps ironic that, just as AI is becoming increasingly embedded in mainstream decision-making, clients continue to trust people when it comes to critical financial choices. At a client level, the AI boom may in fact prove to be a boon for IFAs and wealth managers.
More long-ranging changes
The 2024 Budget provided welcome reassurance for EIS and VCT schemes by extending the existing sunset clause by ten years to 2035. This addressed earlier speculation that the schemes might be withdrawn or significantly diluted. With the tax-efficient patient capital market now secured for the longer term, clients and advisers alike can feel more confident in continuing to use these investments as a meaningful component of diversified portfolios.
Further changes announced in the November 2025 Budget extended the investment pathway under which companies can continue to access EIS and VCT funding. By raising eligibility thresholds, more mature businesses are now able to benefit from these schemes.
The gross assets test increased from £15 million to £30 million pre-investment (and £35 million post-investment), allowing more established firms to qualify. Annual investment limits rose to £10 million for standard companies and £20 million for knowledge-intensive companies, while lifetime caps increased to £24 million and £40 million respectively.
These changes, excluding certain Northern Ireland sectors such as energy trading, which remain subject to regional aid rules, are expected to unlock up to £20 billion in additional funding over the next decade, primarily supporting scale-ups in technology and life sciences.
If realised, this additional £2 billion per annum represents a significant market opportunity for funds, advisers, and clients alike. The higher caps also extend scheme eligibility to companies with greater scale and maturity, often closer to a potential exit than has historically been the case.
This has the effect of reducing aggregate risk across the sector, which may increase the attractiveness of EIS investments and help offset the impending reduction in upfront tax relief for VCTs.
While the reduction in upfront tax relief is unhelpful, the cumulative impact of the broader relaxations provides a meaningful counterbalance. The increased fiscal drag elsewhere further enhances the relative appeal of tax-efficient investments to a wider audience. Taking all factors into account, it is very much business as usual for the TEI sector.
This piece featured in this year’s annual issue of Tax-Efficient Investment (TEI) Insights, which you can read here!
By Paul Wilson, Director and Managing Partner of IFA Magazine
Paul is a Director and Managing Partner at Clifton Media Lab, the organisation which sits behind Tax-Efficient Investment Magazine, as well as its sister titles IFA Magazine and WealthDFM. 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. His personal interests are in film, in which he completed an MA ten years ago, as well as art, photography, economics and science.
