TAX relief for investors in venture capital trusts (VCT) being cut from 30% to 20% in the Budget is “starving Britain’s innovators of growth capital”, experts say.
In the small print of the Budget, experts have seen that the government has slashed the upfront tax relief for investors in VCT.
However, the government did commit to increase the VCT company investment limit to £10 million and £20 million for knowledge-intensive companies.
It also increased the lifetime company investment limit to £24 million and £40 million respectively.
Wrong message, wrong time
Financial advisers have criticised the cut in tax relief.
Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning, said: “Cutting VCT relief risks starving Britain’s innovators of growth capital. Reducing upfront tax relief for VCTs from 30% to 20% sends the wrong message at the wrong time.
“These schemes fund exactly the kind of early-stage, high-growth businesses the UK needs to drive productivity and innovation. History shows that when VCT relief was cut from 40% to 30%, fundraising collapsed by two-thirds and it took more than a decade to recover.
“If investors lose the incentive to back riskier, illiquid ventures, this move could choke off capital for the very firms that create jobs, tax revenue, and future economic growth.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said small companies will be affected.
He added: “This Chancellor’s ‘growth agenda’ rhetoric consistently fails to match policies that encourage investment, risk-taking, and entrepreneurialism. The reduction in upfront income tax relief will materially reduce incentives for investing in illiquid, high-risk VCTs.
“This will likely deter many investors, especially when they can gain greater income tax relief of up to 45% on mainstream, less risky pension investments. The industry impact will be stark.
“When VCT income tax relief was cut from 40% to 30% in 2006/07, funds raised fell 65% year-on-year and didn’t recover to previous levels for another 16 years. Yesterday’s announcement means 2026/27 will be no different, leaving smaller companies facing a funding drought in the years ahead.”
Growth agenda contradicted
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said companies will develop overseas instead.
He continued: “It’s measures like these that obviously contradict the so-called growth agenda the government claim they have. The Chancellor specifically said she wants scale up businesses to be investing in the UK but quietly restricted the incentive for VCTs.
“Partly the issue with scale-ups is that funding isn’t available and so why is restricting it going to improve anything? It’ll save a few million and we’ll watch companies develop overseas, losing future jobs and tax revenue.”
