The government should reconsider changes to venture capital trust (VCT) tax relief announced in the Autumn Budget as they are likely to result in a fall in VCT investment, according to Wealth Club.

The high net worth investment service warned the changes risked leaving UK start-ups and scale-ups facing a funding shortfall of around £550m in the first year.

It said that the reduction in VCT tax relief from April was likely to cause a sharp decline in VCT investment, and expected only a small proportion of that capital to be redirected into the enterprise investment scheme (EIS).

“The government urgently needs to reconsider these changes,” commented Wealth Club founder and CEO, Alex Davies.

“Our analysis shows that start-up and scale-up businesses could face a funding shortfall of well over £500m, as a direct result of changes to VCT tax relief announced in the Budget.

“If the aim, as was claimed in the Budget, is to make Britain the best place to start and scale a business, this misguided policy risks achieving the opposite.”

Davies added that the assumption that EIS would replace displaced VCT funding was not supported by evidence and did not reflect investor behaviour.

“VCTs and EIS are not competing sources of capital – they are complementary,” he said.

“While some investors use both, the overlap is limited. Among our own clients, only 19 per cent invest in both VCTs and EIS.”

Wealth Club conducted a study after the Budget that found 42 per cent of investors planned to stop investing in VCTs entirely, while 44 per cent said they would invest less.

Just 13 per cent of respondents said they would divert those investments into EIS.

“In our survey, 58.7 per cent said EIS was too risky, 45.8 per cent said it was too illiquid, and 15.1 per cent said minimum investment levels were too high,” Davies noted.

“For context, VCT minimum investments typically range from £3,000 to £6,000, while minimum investments for EIS funds range from £10,000 to £50,000.”

Using sales data from the 2024/25 tax year and its survey results, Wealth Club estimated that the reduction in VCT investment would lead to a gross funding loss of £631.9m, with £82.1m being redirected EIS, resulting in a net shortfall in early-stage funding of approximately £549.8m.

“This is not an abstract policy debate – it has immediate, real-world consequences for the funding available to thousands of early-stage UK businesses the government says it so wants to support,” Davies said.

“We are urging Rachel Reeves to urgently reconsider these changes before they come into force in April. Failure to act will create a significant funding gap that risks stalling early-stage business growth in the UK, with knock-on effects for jobs, innovation and economic growth.”

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