VCT income tax relief dropping to 20%: what’s happening and what could investors do?

From 6 April 2026, the rate of VCT (Venture Capital Trusts) income tax relief is being cut from 30% to 20%.

If you are considering investing in VCTs, these last few weeks before the end of the tax year could be the last opportunity to receive income tax relief at the higher rate of 30% – a tax break worth up to £60,000 if using the full £200k VCT allowance – and tax-free dividends (dividends are variable and not guaranteed).

It may be prudent to act promptly. The longer you leave it, the less choice you will have, as VCT offers reach capacity and close. If you delay beyond the end of the tax year, you will miss out on the current 30% rate of income tax relief, if these changes go ahead.

Below we explain the changes in more detail.

Tax rules can change and benefits depend on circumstances. This is a brief outline based on current rules: there are detailed conditions and rules you should consider carefully before investing. Decisions should be based on the investment merit, not the tax reliefs alone.

A Venture Capital Trust (VCT) is a company listed on the London Stock Exchange that in turn invests in young, innovative, usually privately-owned companies. It is akin to an investment trust but invests in smaller and younger, therefore riskier, companies.

The government offers generous tax breaks to encourage investment into dynamic British enterprise.

Under current rules, when you invest, you could currently receive:

• Up to 30% income tax relief – a saving of up to £60,000 on your income tax bill when you invest in newly issued VCT shares
• Tax-free dividends – no need to declare VCT dividends on your tax return and they won’t use up your dividend allowance, which is currently £500 (note, dividends are variable and not guaranteed)
• Tax-free growth – no CGT on gains

You must have sufficient income tax liability to offset, and the shares must be held for at least five years. Tax rules can change and benefits depend on circumstances.

What is changing?

No changes have been announced regarding tax-free dividends and tax-free growth. The changes coming into effect on 6 April 2026 (see table below) only affect the rate of income tax relief, which is reducing from 30% to 20%.

So, in the new tax year, someone investing the full £200,000 allowance would see their maximum income tax relief reduced from £60,000 to £40,000.

Are these changes definitely going ahead?

The investment industry has reacted with severe concern to the government’s decision to reduce upfront income tax relief. While the increase in investment limits for companies was welcomed, key figures in the industry, including the Association of Investment Companies (AIC), the Venture Capital Trust Association (VCTA), several VCT managers and Wealth Club have warned that the cut in tax relief is a “retrograde move” that could stifle, not boost, investment in high-growth UK companies.

There have been increasingly pressing calls for the government to revert the change. These have been so far fruitless. Unless the government makes any announcements, investors should assume early April marks the last opportunity to benefit from up to 30% income tax relief.