How tariffs and a global recession could impact EIS and VCT investments

In the face of rising global economic uncertainty, financial advisers are increasingly being asked: “What does this mean for investments into EIS and VCT schemes?” With the ongoing see-sawing of tariffs and reciprocal tariffs, as well the looming risk of a global recession, it’s crucial to understand how these macroeconomic trends could affect the early-stage investment landscape and the clients who invest in it.

Of course, the environment remains highly uncertain. Despite some ‘warm words’ from US VP JD Vance recently, it seems likely that the UK will not be exempt from Trump’s tariffs, despite the efforts of the government to keep on the right side of the US administration.

Investor confidence in an uncertain climate

As advisers know only too well, EIS (Enterprise Investment Scheme) and VCTs (Venture Capital Trusts) are powerful tax-efficient vehicles for HNW individuals seeking looking for growth potential in early-stage businesses. However, they are not immune to shifts in global economic sentiment.

During periods of economic stress like we’re seeing right now—triggered by factors like increased tariffs or a potential global slowdown—investor confidence tends to wane. This risk aversion can lead to reduced appetite for higher-risk asset classes, such as EIS and VCTs. Advisers should be prepared for more cautious behaviour among clients, particularly those who may not have invested through multiple market cycles in the past.

Pressure on portfolio companies

The businesses that EIS and VCTs support—typically early-stage, growth-focused companies—are particularly exposed to external shocks. Tariffs can increase the cost of goods and disrupt supply chains, especially for UK startups involved in manufacturing, tech hardware, or cross-border trade. Meanwhile, a recession could lead to a downturn in consumer spending or corporate procurement, stalling revenue growth just when these companies are trying to scale.

These pressures can increase the risk of business failure or dampen the prospects of achieving a profitable exit—both of which impact investor returns.

Valuation headwinds and exit challenges

In tougher economic times, it is common to see downward pressure on company valuations. This not only affects the internal rate of return (IRR) for investors but may also delay or devalue exit opportunities. IPO markets may slow, trade buyers could become more conservative, and acquisition multiples could fall.

Advisers should help clients maintain a long-term perspective. Volatility can be unnerving, but it’s worth remembering that many of the UK’s most successful startups navigated their early growth phases during challenging economic periods.

Government policy: A potential counterbalance

One important factor that could mitigate recessionary headwinds is government support. Historically, the UK government has responded to economic downturns by reinforcing incentives for private investment into SMEs. This could come in the form of expanded EIS/VCT thresholds, increased tax reliefs, or additional grant funding for innovation.

Advisers should keep a close eye on fiscal policy announcements – especially as we head towards the Chancellor’s next budget in the Autumn. Enhancements to the schemes could not only support existing investments but also present new planning opportunities for clients.

Focus on resilient sectors and quality managers

While some sectors will feel the effects of tariffs and recession more acutely, others—such as digital health, cleantech, software-as-a-service, and cybersecurity—may continue to attract investment and deliver growth. Advisers may wish to prioritise EIS and VCT providers with a strong track record in these more resilient areas.

Equally important is manager quality. Experienced fund managers with robust due diligence processes and diversified portfolios are best placed to weather economic storms and identify opportunities amidst volatility.

Key takeaways for advisers

• Manage clients’ expectations: Reiterate the long-term, high-risk nature of EIS and VCTs to clients.
• Diversify: Focus on funds that offer sectoral and geographical diversification.
• Stay informed: Monitor government policy for changes that could benefit or reshape the EIS/VCT landscape.
• Lean on expertise: Recommend fund managers with proven success across economic cycles.

While the macroeconomic backdrop may be uncertain, the case for investing in UK innovation and entrepreneurship remains compelling—especially when supported by tax-efficient structures like EIS and VCTs. For advisers, now is the time to bring clarity, perspective, and quality guidance to clients considering or continuing their journey in this space.