Start-ups could face a “funding drought” as many investors say they won't invest in Venture Capital Trusts (VCTs) once changes announced in the Budget come into force.
The warning comes from VCT broker Wealth Club, which surveyed its clients to understand what effect this change will have on investor behaviour. The Budget set out plans to cut income tax relief on VCTs from 30% to 20% from April 2026.
The survey suggested that:
- 41.6% of investors said they won’t invest in Venture Capital Trusts (VCTs) once the changes are introduced, 43.5% will invest less
- 96.4% would like the Government to reconsider the cut in VCT relief
- 85.6% think overall investment in start-ups and scale-ups will decrease
- Only 13% of VCT investors expect to invest more in other venture capital schemes (EIS or SEIS)
The survey was completed the week commencing 01/12/2025, and received responses from 511 high net worth and sophisticated investors, including 474 VCT investors.
Alex Davies, CEO and Founder of Wealth Club, said:
“VCTs have been a crucial source of funding for the UK’s small and growing companies over the last 30 years. However, UK start-ups should prepare for a funding drought after the Government’s decision to water down income tax relief.
“Two fifths of Wealth Club clients expect to invest less in VCTs under the new rules, another two fifths say they won’t invest anything at all.
“That should not be a surprise. The last time VCT relief was cut by 10% fund raising fell by 65% year-on-year. The last time VCT income tax relief was set at 20%, way back in 2003/04, the industry raised just £70 million. That compares with nearly £900 million raised in 2024/25.
“We are seeing a rush of investors looking to get in before the tax rules change, which is likely to drive a race to access the best VCTs before they fill up. However, we expect VCT investment to fall off dramatically next tax year. That is bad news for the hundreds of small UK companies that rely on VCTs for funding and is frankly unforgivable for a government that claims to be all about economic growth.”
