Chancellor John Healey (pictured) delivered his first Budget today (28 October). Credit: Kirsty O'Connor / No 10 Downing Street
The cut to upfront income tax relief for venture capital trusts (VCTs) at the last Budget will remain in place, despite significant industry lobbying to overturn it.
Chancellor John Healey did not mention VCTs in his maiden Budget today (28 October), nor were there any policy announcements in the attendant 166-page document.
At the last Budget, his predecessor Rachel Reeves cut the upfront income tax relief rate for VCTs from 30% to 20% – a change that took effect in April this year.
The Treasury said at the time the move was an effort to "better balance the amount of upfront tax relief compared to enterprise investment schemes (EIS), where dividend relief is not available".
The Association of Investment Companies (AIC) and the Venture Capital Trust Association (VCTA) in September called on Healey to reinstate the 30% relief rate. This was followed by an open letter penned by industry stakeholders and a dozen MPs echoing their arguments.
Richard Stone, chief executive of the AIC, said after today's Budget: "Given the chancellor's support for business founders, it is frustrating that he has not restored VCT tax relief to 30%. The cut to 20% in the last Budget will mean less funding for scale-up companies which create jobs and growth for the UK economy."
Chris Lewis, chair of the VCTA, added: "We welcome the government's ambition to improve the business environment for founders and support for the next generation of entrepreneurs. Helping businesses start, scale, and stay in the UK is an objective we share.
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"However, today's Budget and the government's response to its consultation on tax support for entrepreneurship represent a missed opportunity to strengthen the funding available to those businesses by restoring upfront VCT income tax relief to 30%. With VCT fundraising remaining depressed, the need to rebuild investor confidence is urgent."
Chelsea Financial Services, which also called for the relief cut to be reversed, noted that the reduction would save the Treasury £125m in 2027/28 and approximately £100m per annum thereafter – equivalent to 3.5 hours of annual welfare spending, based on 2025/26 figures.
The last time it was cut was in 2006/07, from 40% to 30%, after which the AIC said fundraising fell by two-thirds and did not recover for 16 years.
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At the same time, Reeves increased the investment limits for EIS and VCTs, doubling the annual company investment limit from £5m to £10m, the lifetime company limit from £12m to £24m and gross assets tests from £15m before share issue to £30m.
This move was welcomed as rates had remained unchanged since 2016, which, accounting for inflation, had nearly halved their investment power.
After last year's changes, VCTs raised their third highest annual fundraising on record in 2025/26 as investors locked in the higher rate of relief. On 27 November last year, the day after the 2025 Budget, VCTs registered a 538% spike in inflows, according to Wealth Club.
