The Venture Capital Trust is celebrating its 30th year of existence in 2025, and who better to talk us through this investment vehicle than Will Fraser-Allen, Managing Partner at Albion Capital. In a special GBI episode of IFA Talk last month, Will joined us to discuss how VCTs have changed over the years and revealed what continues to make them relevant in today’s market.
Since VCTs were introduced to Parliament in 1994 by then-Chancellor Kenneth Clarke, the scheme has remained a cornerstone of UK investments. Will explained that Kenneth Clarke set out to achieve two things: firstly, to develop a venture capital industry in the UK, and secondly, to back innovation.
While technology has advanced significantly over the last few decades, the focus for VCTs has remained to invest in young, innovative companies. “It would be fair to say that the focus on technology has increased over that time,” Will admitted. “That is really in support of the public policy behind VCTs.”
A key benefit of VCTs is the attractive tax incentives which they offer. This, as Will suggested, has always encouraged people to invest in VCTs. “The Government is saying that in return for taking risk around investing in early-stage companies, the quid-pro-quo for that is upfront tax relief of 30% and tax-free dividends,” he stated.
What makes VCTs relevant today?
VCTs are as relevant as ever, even 30 years after their inception. Will believes that the access it gives to investors has allowed VCTs to remain at the forefront of investments while staying true to their original purpose. “Venture Capital as a sector has done exactly what the then-Chancellor wanted it to do,” he stated. “It has grown significantly, but what hasn’t happened is the access to venture for the retail investor, and that’s where VCTs come in.”
The calibre of companies also plays a part in the continued applicability of VCTs, as Will explains. “The relevance is the ability to access the fastest growing, most ambitious companies and giving access to the returns that venture capital is capable of delivering,” Will added. “If you back those really exciting companies that go on to be category leaders, you can deliver very strong returns for our investors.”
A strong fundraising landscape
On the topic of the current fundraising environment, Will spoke positively, noting that fundraising levels have increased somewhat from last year. Albion Capital’s VCTs’ top-up offer, launched in January, has seen a subscription increase of 30% from last year.
Will believes that there are multiple reasons for this increased interest. The tax incentives provide obvious benefits to clients, while he also states that people recognise the ever-evolving potential of technology. “You only have to look at the huge success of the Magnificent Seven over the last couple of years,” he explained. “It’s definitely increased the prominence of technology as a really interesting asset class, and venture is potentially the highest growth of all within that sector.”
A major example from Albion’s portfolio is Quantexa, a business which uses artificial intelligence-driven identity resolution to enable banks to detect financial crime, such as money laundering. Albion Capital backed Quantexa in 2017 when they were a small, emerging company. “Fast forward to 2025, [Quantexa] recently announced they’re achieving US$100 million of annual recurring revenue, Will revealed. “They have well over 600 employees, and they’re now increasingly becoming the weapon of choice for large banks and others when fighting financial crime.” Quantexa are now valued at well over £2 billion, known as a ‘centaur’ business.
The Budget and its impact on tax strategies
The recent budget has added further stock to the already appealing nature of VCTs. Will referred to the benefits of VCTs in terms of mitigating pension limitations. “All dividends from VCTs are tax-free, which makes it attractive to those looking for income through a variety of sources,” Will explained. “We see a lot of people nearing retirement investing in VCTs because of that tax-free income, therefore building up a replacement income stream.”
He also noted that the increase to dividend tax has made VCTs more attractive, stating, “The tax-free dividend income stream for businesses is now much more attractive, but I think the underlying point is that it’s an interesting investment asset class.”
Why should advisers recommend VCTs?
For financial advisers, VCTs provide clients with access to a high-growth asset class which is otherwise difficult to access. However, Will did advise that those considering it should first be aware of the potential risks. “I think anybody coming into VCTs should be comfortable with the asset class and obviously the risks that are associated with venture,” he said. “But with those risks comes the opportunity. If your listeners have got clients with an income requirement and specifically a tax-free requirement, then VCTs typically pay around a 5% yield.”
Albion Capital’s VCTs target an annual tax-free income of 5% of the net asset value of the fund, making them especially useful for those looking for alternative income streams. “Using VCTs is a great way of building up that retirement pot, and then at the point of retirement, delivering a really interesting tax-free income in retirement,” Will concluded.
About Will Fraser Allen
Will is Managing Partner at Albion Capital. Albion Capital is a specialist venture capital investor that has backed visionary founders and technologies since 1996. Will is a Venture Capital veteran and has invested in successful companies in a wide range of sectors, such as leisure, media, business services, and healthcare.
