Marking 30 years of Venture Capital Trusts (VCTs), this milestone highlights their role in UK growth, says Diana French, retail strategy director at Triple Point, managers of the Triple Point Venture VCT.
For advisers, VCTs offer clients tax-efficient investment solutions with attractive reliefs and diversification opportunities particularly following Budget tax changes announced in the Autumn.
This year marks the 30th anniversary of Venture Capital Trusts (VCTs), celebrating three decades of empowering investors to back the UK’s most innovative and ambitious businesses. The Government’s decision last year to extend the sunset clause through to 2035 ensures these vital tax-efficient vehicles can continue driving growth and supporting entrepreneurs. This milestone serves as a reminder of VCTs’ enduring role in fostering innovation, creating jobs, and shaping the future of the UK economy.
Why investors are drawn to VCTs
For investors, the appeal of VCTs lies in their unique tax advantages. While VCTs offer up to 30% upfront income tax relief – slightly less than the up to 45% pension relief taxpayers can claim on pension contributions – VCT shares need to be owned for a minimum of just five years to retain the upfront tax relief. After this period, investors can then sell their VCT shares free of any Capital Gains Tax (CGT) and reinvest in another VCT to claim a further round of tax relief.
Additionally, for those clients seeking tax-efficient income, VCT dividends are not subject to dividend tax. This feature is increasingly attractive given the dividend allowance was halved in April 2024 to just £500, making VCTs a more compelling complement to other tax-advantaged investments, such as pensions and ISAs.
In light of reduced dividend allowances over the past few tax years and evolving pension rules, VCTs are emerging as an increasingly attractive proposition. They offer a compelling tax-efficient solution, and can provide both tax-free income and growth opportunities. These features enhance their role as part of a diversified strategy in today’s complex fiscal landscape.
It’s easy to see why VCTs come with such attractive tax benefits – after all, the original purpose of VCT legislation was to stimulate investment into young, ambitious UK businesses which may otherwise struggle to get the capital needed to fuel their growth ambitions. These incentives aim to encourage investors to channel funds into sectors of the economy that drive innovation, employment, and long-term growth potential.
The art and science of early-stage investing
However, identifying and nurturing these dynamic growth companies is both an art and a science. For example, the Triple Point Venture VCT finds and backs companies at an earlier stage of their growth journey, usually at pre-seed or seed stages, because we believe this is where meaningful returns begin. We also focus on Business to Business (B2B) companies because, quite simply, the data shows us that they stand the best chance of being sold for a profit.
Why does early-stage investing matter?
For three important reasons. First, investing in early-stage companies means supporting visionary founders with ideas that could become world-renowned companies. Without the financial support these companies need, those ideas may never get off the ground. Second, early-stage investing boosts economic growth and helps create jobs. As they grow, early-stage companies start to increase their revenue and take on more employees, making an important economic contribution. And third, early-stage investing gives investors the chance to own a stake in a company that could turn out to be a global game-changer.
Balancing risk with diversification
While the risks associated with VCT investment are high, there’s also potential for significant returns. Many start-ups, particularly those at early stages, face a high failure rate, which makes diversification essential. By investing in a broad range of portfolio companies and sectors at different stages of maturity, VCT managers can help mitigate individual risks and reduce the impact of any single company’s failure. This strategy allows for a more balanced portfolio, where the performance of successful companies can offset the losses of others. Additionally, VCTs offer valuable diversification benefits to clients’ overall investment portfolios, especially for those looking to broaden their exposure beyond traditional asset classes. This not only helps reduce the overall risk but also enhances the potential for long-term growth.
Advisers’ role in guiding clients
For advisers, educating clients about the importance of risk tolerance and matching VCT investments with the appropriate financial goals is vital. VCTs are high-risk investments, with the potential for significant reward. It’s therefore important for advisers to guide their clients in selecting VCTs that suit their individual risk profiles—whether they’re focused on long-term growth or more cautious capital preservation.
With 30 years of success behind them and the extension of tax reliefs last year, VCTs are poised to remain a cornerstone of innovation and growth in the UK economy. For financial advisers, this anniversary is an opportunity to revisit the unique role VCTs play in helping clients achieve their investment goals. By enabling investors to back high-growth UK businesses while enjoying significant tax advantages, VCTs not only offer compelling potential returns but also empower individuals to contribute to the future of the UK’s entrepreneurial success stories.
This article was featured in our Venture Capital Trusts (VCT) Annual Report 2025, which you can read in full here.
About Diana French
Diana joined Triple Point in 2022 and is the Retail Strategy Director. Her role involves working across the business to build and develop the distribution strategy for the retail products.
Prior to joining Triple Point, Diana worked at Octopus Investments for over 9 years in several roles across Sales and Product.
Diana has an Economics degree from the University of Warwick and is also a member of STEP.
