At an industry conference hosted by the Association of Investment Companies on 11 June, Barclays’ head of venture capital products, Georgiana Bennett, noted that tax incentives have traditionally been a key reason investors choose VCTs. She explained that the recent reduction in income tax relief is likely to shift investors’ focus more towards the underlying investment returns and overall performance of VCTs.
The sector reacted negatively after the government announced in its November Budget that income tax relief on VCT investments would be reduced from 30% to 20%, with the change taking effect from the 2026/27 tax year.
Although there is general agreement that lower tax relief will reduce fundraising, Bennett said “the jury is still out” on the scale of the decline, with some forecasts described as “quite pessimistic”.
She added that VCTs are a well-established industry with billions in assets under management, and cautioned against predictions of a 65% fall based solely on conditions from 20 years ago, pointing to the 2006 cut in relief from 40% to 30%.