VCTs

About VCTs

A venture capital trust (VCT) is a listed investment company that raises money from individual investors and uses it to back small, growing UK businesses. In return for the higher risk involved, investors receive a package of tax reliefs. These include income tax relief on the amount invested, tax-free dividends, and no capital gains tax when the shares are sold.

Income tax relief on new VCT investments is 20%, reduced from 30% in April 2026. You can invest up to £200,000 per tax year, and you need to hold the shares for at least five years to keep the relief.

VCTs sit alongside Enterprise Investment Schemes and Seed Enterprise Investment Schemes as one of the government's venture capital schemes, but they work differently. You’re investing in a managed fund, not directly into a single company. VCTs have raised over £11 billion since the scheme launched in 1995, and the rules around which companies qualify have just been widened. VCT managers can now invest in slightly larger, more established businesses.

That said, VCTs are higher-risk investments and they are not suitable for everyone. The underlying companies are small, often unquoted, and the shares themselves can be difficult to sell. Tax relief softens the risk, but it doesn’t remove it.

At Vintage Wealth Management, we advise on VCTs as part of a wider tax and investment strategy. We look at whether they make sense given your income tax position, your existing portfolio, and how much risk you’re comfortable taking on.

How do venture capital trusts work?

A VCT raises money by issuing new shares, usually through an offer for subscription that runs until it reaches its fundraising target or a set deadline. You buy shares in the trust itself, not in the underlying companies. Income tax relief is only available on new shares bought directly from the VCT, not on shares purchased from another investor on the stock market.

Once the money is raised, the VCT manager has up to three years to invest at least 80% of the fund into qualifying holdings. The remaining 20% can be held in lower-risk assets such as gilts or cash. Qualifying companies must have a permanent establishment in the UK, carry out a qualifying trade, and meet certain size tests. Since April 2026, a qualifying company can have gross assets of up to £30 million before investment, up from the previous limit of £15 million.

Returns from VCTs generally come through dividends rather than capital growth. The manager builds a portfolio of small companies, supports their development, and typically looks to sell its stake over three to seven years. When a company is sold successfully, the profits are distributed to shareholders as dividends. These dividends are variable and aren't guaranteed.

VCT shares are listed on the London Stock Exchange, but the market for them is thin. There aren't always willing buyers, and the price you receive may be higher or lower than the value of the underlying investments. Many VCT managers run periodic share buyback schemes, but these are typically offered at a discount to the net asset value and aren't guaranteed either.


What tax relief do you get with VCTs?

There are three main tax benefits when you invest in new VCT shares. Together, they're designed to offset the higher risk that comes with backing small, early-stage companies.

Income tax relief

You can claim income tax relief at 20% on up to £200,000 invested in new VCT shares per tax year. That means a maximum reduction in your income tax bill of £40,000. You can only claim relief against income tax you actually owe. If your total income tax liability for the year is less than the relief available, you can't carry the excess forward or back.

The relief is only available on new shares bought directly from the VCT during a share offer. It doesn't apply to shares purchased from another investor on the secondary market. If you sell your shares within five years, you'll need to repay the relief to HMRC.

Tax-free dividends

Dividends from VCT shares are exempt from income tax. You don't need to declare them on your tax return, and they don't count against your £500 dividend allowance. This applies to all VCT shares, whether you bought them through a new share offer or on the secondary market.

For higher and additional rate taxpayers, this can be significant. With dividend tax rates now at 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers, a tax-free VCT dividend goes further than a taxable dividend of the same amount. A 5% yield from a VCT, for example, is equivalent to a taxable yield of roughly 7.8% for a higher rate taxpayer. Dividends are variable and aren't guaranteed, though, and they depend on the performance of the companies in the portfolio.

No capital gains tax

When you sell your VCT shares, any gain is free from capital gains tax. This applies regardless of whether you subscribed for new shares or bought them on the secondary market, and there's no minimum holding period for this particular relief.

There is a trade-off, though. Because gains are exempt, losses are also exempt. If your VCT shares fall in value and you sell at a loss, you can't use that loss to offset gains elsewhere. VCTs also don't offer capital gains deferral relief. If you have an existing gain you want to defer, the Enterprise Investment Scheme may be more appropriate, and that's something we can help you work through.

What changed in April 2026?

The Autumn Budget 2024 introduced two sets of changes to the VCT scheme, both taking effect from 6 April 2026.

The headline change was the reduction in income tax relief from 30% to 20%. That brought the maximum relief on a £200,000 investment down from £60,000 to £40,000. Tax-free dividends and the capital gains tax exemption were not affected.

The less publicised but potentially more significant change was to the rules around the companies VCTs can invest in. The gross assets threshold doubled from £15 million to £30 million before investment. Annual investment limits for companies also doubled, from £5 million to £10 million, and from £10 million to £20 million for knowledge-intensive companies. Lifetime limits followed the same pattern.

This means VCT managers now have access to slightly larger, more established businesses. Companies that had previously outgrown the scheme can now qualify again. Over time, that could make VCT portfolios more resilient, though it's too early to say whether it will translate into better returns for investors.

The government's stated intention was to rebalance VCT relief against EIS, which doesn't offer tax-free dividends but still carries income tax relief at 30%. Whether the lower upfront relief changes the case for VCTs depends on your individual tax position and how much weight you put on the dividend and CGT benefits that remain in place. 



How do VCTs compare
to EIS?

VCTs and the Enterprise Investment Scheme are both government-backed venture capital schemes, and they target similar types of companies. But the tax reliefs are different, the way you invest is different, and the level of risk is different. If you're considering either, it helps to see them side by side.

The numbers tell part of the story. EIS gives you more upfront income tax relief and a shorter holding period. It also opens up reliefs that VCTs don't have, including capital gains deferral and inheritance tax relief, although the IHT relief is now capped at £1 million of qualifying assets from April 2026.

What the table doesn't show is the difference in how the two feel as investments. With a VCT, you're buying into a managed portfolio of companies. The fund manager picks the investments, and your money is spread across them. With EIS, you're going into individual companies, sometimes just one. That concentration means more upside if it works, but more downside if it doesn't. EIS shares are also unlisted, so your money is locked in until the company is sold, floats, or fails. We can help you work through that.

Why work with Vintage Wealth Management?

VCTs don't sit in a silo. They sit alongside your pension, your ISA, your other investments, and your wider tax position. We look at all of that before recommending whether a VCT makes sense, how much to invest, and how it fits with everything else.

Vintage Wealth Management has been advising on tax-efficient investment and estate planning for over a decade. We're named in the FT Adviser UK Top 100 Financial Advisers every year since 2021, and our team includes Chartered Financial Planners and Fellows of the Personal Finance Society who specialise in tax planning, estate planning, and investment advice.

We've got offices in Central London, North West London, Portsmouth, Buckinghamshire, Swindon, and Dublin, and we work with clients across the UK.
Get in touch and we'll take it from there.

  • No. Dividends from VCT shares are exempt from income tax and don't need to be reported on your self-assessment tax return. They also don't count against your £500 dividend allowance. This applies whether you bought the shares through a new offer or on the secondary market.

  • After five years, you're free to sell your VCT shares without losing the income tax relief you claimed when you invested. There's no obligation to sell at that point, and many investors choose to hold on if the VCT is still paying dividends. If you do want to sell, your options are the secondary market on the London Stock Exchange or a share buyback scheme run by the VCT manager, if one is available. Buybacks are typically offered at a discount to the net asset value.

  • No. VCT shares form part of your estate for inheritance tax purposes. Unlike EIS investments, VCTs don't qualify for business relief, so there's no IHT exemption. If you're thinking about how your investments sit within your estate, our inheritance tax planning page covers the options in more detail.

  • Once the VCT has been approved by HMRC, you'll receive a tax certificate (known as an EIS3/VCT certificate). You can then claim the relief through your self-assessment tax return, or ask HMRC to adjust your tax code if you're employed and pay tax through PAYE. The relief is applied against your income tax liability for the tax year in which the shares were issued.

  • Your VCT shares pass to your beneficiaries as part of your estate. The capital gains tax exemption still applies, so there's no CGT on the transfer. However, if you die within five years of subscribing for the shares, the income tax relief you claimed isn't clawed back. The shares will be valued at their market price at the date of death for inheritance tax purposes. As mentioned above, VCT shares don't qualify for business relief, so they'll be included in your estate at full value.

Frequently asked questions about venture capital trusts

Disclaimer

The information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor.

Business Property Relief (BPR) is subject to HMRC rules and may change in the future. Qualification depends on individual circumstances and is not guaranteed. Investments that aim to qualify for BPR, such as shares in smaller or unlisted companies, carry higher risk and their value can fall as well as rise. Investors may not get back the full amount invested. BPR typically requires assets to be held for at least two years and relief will only apply if the qualifying conditions are met at the time of death.

Your capital is at risk – your investment can fall as well as rise in value so you could get back less than you invest. In addition, because AIM-listed companies tend to be smaller, more volatile and subject to less stringent checks than those quoted on the main London Stock Exchange, the risks are greater. The Financial Conduct Authority do not regulate tax planning or trusts.

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. Links to related sites have been provided for information only. Their presence on this blog does not mean that the firm endorses any of the information, products or views published on these sites. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.