Wealth managers and advisers believe the cut in venture capital trust (VCT) tax relief from 30 per cent to 20 per cent will hit fundraising, a survey by Calculus Capital has shown.

Its straw poll of advisers found that 75 per cent expected their future use of VCT to fall due to the cut to income tax relief, with 40 per cent anticipating a significant drop.

“It’s hard to square the Chancellor’s decision to cut VCT tax relief from 30 per cent to 20 per cent with the government’s ‘pro-growth’ agenda,” commented Association of Investment Companies (AIC) communications director, Annabel Brodie-Smith.

“VCTs play a crucial role in providing some of the country’s most exciting growth companies with money to scale up.

“The upfront tax relief is a vital incentive for investors and their advisers to risk their money and cutting it will have an impact on businesses that will struggle to find funding elsewhere.”

The AIC asked advisers and wealth managers about the decision to cut VCT tax relief, alongside the increase to VCT investment limits.

Evelyn Partners managing director, Jason Hollands, described the tax relief cut as a “retrograde move” that was going to “decimate” fundraising.

“The evidence from past cuts to VCT tax relief clearly points to the huge impact such moves make,” Hollands continued.

“The level of incentive on offer for investing in what will remain high risk and illiquid investments, despite some widening of the rules, will simply be insufficient to persuade most investors to subscribe to VCT new issues, especially when they can gain tax relief of up to 45 per cent by subscribing to less risky investments in a pension.

“I also have a secondary concern that it might drive some VCT investors into EIS instead which may not be appropriate for their risk profile, as EIS will continue to provide a 30 per cent tax credit.”

Also commenting on the VCT tax relief reduction, Baron & Grant executive director, Tom Poynton, said: “The 10 percentage point cut in upfront tax relief from 30 per cent to 20 per cent is likely to have a significant negative impact on VCT fundraising.

“Historical data shows that when relief was reduced from 40 per cent to 30 per cent in 2006, fundraising fell by around 65 per cent.

“Given investors cite tax relief as their primary motivation for investing in VCTs, the change risks sharply reducing inflows from April 2026.

“While increased investment limits appear supportive in theory, they are unlikely to compensate for reduced investor appetite, thereby constraining entrepreneurial growth and hindering the government’s broader economic ambitions.”

Birkett Long director and financial planning manager, Paul Chilver, said the firm would potentially recommend fewer VCT investments next tax year, but he expected long-term VCT investment to rise due to the increase to VCT investment limits.

“Firstly, many will bring forward their VCT investments from next tax year to this tax year, so they get 30 per cent income tax relief, which will make a higher amount being invested next tax year more unlikely,” he said.

“Secondly, as there is a limited amount that can be invested into each company, the top VCT managers can hit capacity quite early on.

“However, with the changes announced, including a doubling of the investment amount per company to £10m (£20m for knowledge intensive companies), this should help increase the capacity available.

“As a result of this, longer term we envisage more money being invested into VCTs.”

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