The reduction in venture capital trust (VCT) income tax relief risks undermining growth and negating the positive impact changes to the Enterprise Investment Scheme (EIS) will have on UK businesses, Rathbones has warned.

In the November Budget, investment limits for the EIS were doubled and eligibility was widened, with the changes to take effect from April 2026.

However, a cut in VCT income tax relief from 30 per cent to 20 per cent was announced alongside this, which Rathbones said would make the vehicles less attractive, potentially draining funding from companies at their growth stage.

The wealth manager welcomed the increase in EIS allowances but warned that the VCT changes risked discouraging investors and limiting the flow of patient capital.

It noted that EIS investments carried a higher risk but now offer more attractive tax benefits, while VCTs spread risk across a portfolio but may now see reduced appeal, particularly in a challenging fundraising environment.

With the changes to take effect in April, Rathbones said it expected 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.

"The Chancellor’s decision to double EIS limits is a real boost for UK growth businesses,” commented Rathbones senior investment director, Adam Greaves.

“It gives investors more scope to support companies through their scale-up journey.

"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.”

Rathbones financial planner, Lucy Heath-Thompson, added: “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.”

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