Cuts to Venture Capital Trust (VCT) income tax relief announced in the Budget risk undermining growth and cancelling out the positive impact to UK businesses from changes to the Enterprise Investment Scheme (EIS), Rathbones, one of the UK’s leading wealth and asset management groups, has warned.
The Chancellor expanded the EIS in the Autumn Budget, doubling investment limits and widening eligibility from April 2026, giving a much-needed boost to capital pools for UK businesses. However, reductions to relief on VCTs from 30% to 20%, announced at the same time, will make these vehicles far less attractive, potentially draining vital funding from companies at key growth stages.
Rathbones welcomed the increase in EIS allowances but warned that the VCT amends risk discouraging investors and limiting the flow of patient capital that many early-stage firms rely on. EIS investments, which are made directly into qualifying companies, carry higher risk but now offer relatively more attractive tax benefits. VCTs, which spread risk across a portfolio, may see reduced appeal, particularly in a challenging fundraising environment.
“The Chancellor’s decision to double EIS limits is a real boost for UK growth businesses. It gives investors more scope to support companies through their scale-up journey,” said Adam Greaves, Senior Investment Director at Rathbones. “However, the cut in VCT relief is a concern. VCTs have been a cornerstone of early-stage funding, and any reduction in their appeal could leave promising firms short of capital; it could undermine efforts to strengthen the UK’s entrepreneurial ecosystem.
“If the government is serious about stimulating growth among UK businesses it needs to have a holistic approach and not give with one hand and take with the other.”
With the changes taking effect in April 2026, Rathbones expects a surge in demand for VCT subscriptions over the coming months to take advantage of the higher rates of relief and as schemes typically fill up quickly.
Lucy Heath-Thompson, Financial Planner at Rathbones, said: “VCT offers will fill up rapidly ahead of next April. Many providers offer early bird discounts, and allocations are often snapped up within weeks; but people need to give thought as to whether they are the right investment for them. If that is the case, you need to act quickly to secure the current level of tax relief before it drops.”
Rathbones called on the government to prioritise growth in the run-up to the budget, publishing its five-step recommendations to investment-led prosperity, including the reform of business taxation. Read the full report, entitled “Building Prosperity” here.
