VCT and EIS changes – good for companies, not investors

Investors who use Venture Capital Trusts (VCTs) or Enterprise Investment Schemes (EISs) to invest in start-ups and benefit from tax relief as a result, will face new rules from April 6, 2026, thanks to changes made in the Autumn Budget. These investment vehicles are great ways for companies to raise early investment from investors at what can be the riskiest time to invest in a business. The reward for those prepared to take the risk on investing in a start-up through VCTs or EISs are the tax breaks that are available. But investors are facing a reduction in these tax benefits from April, thanks to changes to the current rules. The changes are different for both VCTs and EISs, and how much a company can raise with each vehicle under the new rules will depend on what type of business it is.

What are the new investment limits?

Eligible companies will be able to have a maximum of £30m in ‘gross assets’ immediately before the share issue through EISs from April 6, 2026, and £35m immediately afterwards. This is an increase of £15m and £19m respectively, compared to the amounts currently allowed. Through both EISs and VCTs, the annual combined amount it is possible to raise will double to £10m, and as much as £20m for knowledge-intensive companies (KICs). In a lifetime, a company will be able to raise £24m through these vehicles, again doubled from the current £12m, and up to £40m for KICs. However, investors may find these vehicles less appealing, as they will see a reduction in their upfront income tax relief on VCT investments from April 6, 2026, when it will fall from 30% to 20%, while tax relief on EISs will remain at 30%. But the way EIS and SEIS shares are treated for inheritance tax (IHT) will change, and from April 6, 2026, 50% of any value over £1m will become subject to IHT at an effective rate of 20%.

Why will these changes be made?

The changes are designed to extend the EIS and VCT limits to support both new companies, and those that are scaling up, while also equalising the tax treatment of VCTs and EISs, as EISs don’t offer dividend relief, said HMRC. Qualifying companies are those that “are not registered in Northern Ireland trading in goods or the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity. These companies will remain eligible for the current scheme limits,” according to Gov.uk. Businesses that qualify will be able to access more investment through these schemes, and there isn’t expected to be a significant change in the amount of administration required. For the several hundred businesses that are near to the current limits, this change will offer a considerable boost.

What is the impact on the people who invest via these vehicles?

Around 24,000 people invest in these vehicles, and those using VCTs will see less upfront income tax relief on their investments. But there should be no change in the way they deal with HMRC. HMRC said this measure “does not change or introduce any tax obligations or processes”. The largest gender investing in VCTs is men, amounting to an estimated 76% of all investors, even though men make up around 50% of the overall population. Most people (57%) investing in VCTs are aged between 45 and 64, even though this age group makes up just 31% of the overall population.

Contact us

If you are already investing in VCTs or EISs and want to know what these changes will mean, or you are interested in investing in these vehicles for the first time, then please get in touch with us and we will explain what you need to know.