- Venture Capital Trusts (VCTs) issued £881 million worth of shares in 2024/25, up from £872 million a year earlier (source: Venture Capital Trusts statistics: 2026 | GOV.UK)
- The amount of funds raised through VCTs has more than doubled since 2009/10
- The number of VCT investors who claimed income tax relief fell 8% in a year to 22,430 – but they claimed relief on £825 million of investment
- Also in 2024/25, 3,735 companies raised almost £1.6 billion under the Enterprise Investment Scheme (EIS), while 2,430 companies raised £276 million under the Seed Enterprise Investment Scheme (SEIS) (source: Enterprise Investment Scheme and Seed Enterprise Investment Scheme: 2026 | GOV.UK)
- 33,220 investors claimed income tax relief on EIS investments and 11,200 on SEISs in 2024/25
Sarah Coles, head of personal finance at AJ Bell, comments:
“You don’t need to be a Dragon to invest in exciting smaller companies with bags of growth potential. But you need to understand exactly what you’re getting into, to avoid getting burned.
“The government has built three tax-efficient schemes to open up the world of venture capital to investors with large and diverse portfolios, who are prepared to take significant risks. In 2024/25 tens of thousands of investors took advantage, claiming tax relief on hundreds of millions of pounds of investments.
“The 2024/25 tax year was a relatively strong year for venture capital fundraising, but Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS) suffered to some extent from higher interest rates on offer elsewhere and a decline from the post-pandemic peak of interest. Higher limits introduced for Seed Enterprise Investment Schemes (SEIS) also diverted some money from EISs to SEISs.
“VCTs, EISs and SEISs aren’t right for every investor, so before you take the plunge you need to appreciate the nature of the investment and the level of risk involved. In the case of VCTs, with some investment platforms this could mean completing a test to ensure you understand what you’re getting into. In the case of EISs or SEISs, investing may involve going through specialist venture capital platforms.
“It’s also vital not to jump into anything purely for the tax breaks. The tax treatment is a generous bonus, but should never be your reason for investing.
What is a VCT?
“VCTs invest in companies that are small, new, and not listed on any stock exchange. It means they have high growth potential, but they’re also high risk, so some of them will be huge successes and some will fail. VCTs are run by fund managers, who invest in a portfolio of these sorts of companies that they think have potential.
“There are three types of VCT. Generalist VCTs build a diverse portfolio of companies in different sectors to spread the risk; AIM VCTs invest in companies listed on the Alternative Investment Market (or AIM); and specialist VCTs invest in specific sectors. You can invest up to £200,000 a year into VCTs.
“They also offer decent tax advantages. If you invest by buying shares in the VCT when it’s open for new investment, you get income tax relief of up to 20%, which means if you put £10,000 in a VCT, £2,000 can be taken off your income tax bill (as long as they are held for a minimum of five years and as long as you pay enough income tax).
“If you buy shares in VCTs in the secondary market you don’t get this tax perk, but just like if you buy newly issued shares in VCTs, dividend income is tax free, and there’s no capital gains tax to pay on any growth in value.
Enterprise Investment Schemes
“These vehicles let investors buy shares in unlisted companies which are smaller and haven’t been trading for more than seven years. They will include companies that are raising money to grow, which means they could gain significantly in value.
“However, they also pose very high risks and some will fail. These are illiquid investments, because there’s no secondary market for the shares, so they need to be sold to generate a capital gain, which means planning an exit is tricky.
“You can invest up to £1 million a year into EISs. This limit rises to £2 million if at least £1 million of it is in what’s known as knowledge-intensive companies. These are businesses that do high level research to create intellectual property.
“They offer tax benefits, including income tax relief up front at 30%. When you sell these shares, it’s free of capital gains tax too, as long as you have held them for at least three years. You can defer capital gains tax by rolling gains into an EIS, and only pay the tax when you sell up at the end.
“EIS shares typically qualify for Business Property Relief on inheritance tax, if you have held them for at least two years. This is 100% on the first £1 million and 50% on the rest – meaning inheritance tax on the excess is effectively charged at 20% instead of 40%.
“If the EIS fails, or you sell at a loss, you can claim loss relief. This is calculated as your initial investment minus any income tax relief you received – and it can be offset against your marginal rate of income tax or capital gains tax.
Seed Enterprise Investment Schemes
“These are similar to EISs, but cover very early stage companies. Many of the tax benefits are the same, although SEISs offer income tax relief at 50% and 50% reinvestment relief for capital gains. There’s no capital gains tax deferral relief though, and the annual limit is £200,000.”
