Venture Capital Trusts (VCTs): at a glance
- What do I need to know? Venture Capital Trusts are high-risk investments that can offer tax benefits, including Income Tax relief, tax-free dividends, and no Capital Gains Tax (CGT) when you sell your shares.
- What does it mean for me? High earners paying significant Income Tax can benefit from a reduced bill if you support small businesses by investing in a VCT.
- Why does it matter? Venture Capital Trust tax relief requires holding shares for at least five years and will reduce from 06 April 2026.
Venture Capital Trusts (VCTs) can enhance your financial portfolio, offering the potential for high returns in exchange for supporting new businesses.
But they also invite higher risk than other types of investment. In this guide, you’ll learn how VCTs work, the advantages and disadvantages of these investments, and whether they could fit your goals and wealth strategy.
What are Venture Capital Trusts (VCTs)?
Venture Capital Trusts are government-approved, tax-efficient schemes designed to encourage investment into small, qualifying trading companies with high-growth potential.
VCTs are publicly listed companies on the London Stock Exchange (LSE). They invest in a portfolio of small, private companies to spread risk. This is because it’s less likely that a range of different companies will underperform at the same time, although it is possible.
As VCTs invest in businesses that are at an early stage and higher risk, the UK government offers tax benefits to attract investment. This includes:
- 30% Income Tax relief, subject to a five-year holding period
- tax-free dividends for investors
- Capital Gains Tax (CGT) exemption on sale of shares
How do Venture Capital Trusts work?
A VCT invests in young, private UK companies with high-growth potential. Investors can benefit from tax breaks in exchange for taking on greater risk with a long-term commitment. When you invest, you own shares in the trust itself, rather than portions of the companies the trust invests in.
You can sometimes receive returns if the VCT distributes money to shareholders whenever it sells a stake in a company. But this depends on the VCT you invest in.
Committing your capital
The dividends you receive from Venture Capital Trusts are tax-free, and you won’t pay CGT when you sell your shares provided you hold your shares for at least five years. Otherwise, you may have to pay the outstanding taxes on any profit you make on your investment.
While your money is tied up in a VCT, it’s important to keep additional funds accessible in case of the unexpected. Instant Access savings accounts or Cash ISAs (Individual Savings Accounts) can provide flexibility and availability for your cash
Entry requirements
The minimum amount you can invest in VCTs depends on the provider. But the average minimum is usually around £3,000. While there’s not usually a maximum VCT investment, you can only claim Income Tax relief up to £200,000 per tax year.
VCT shares can be harder to sell than other investments. You can sell them on the London Stock Exchange, or sometimes through a buyback scheme. But if you choose to sell your shares back to the VCT as part of a buyback scheme, you may receive less than the full value of your shares.
Venture Capital Trusts also usually charge fees. These can include initial charges, annual management fees, and, in some cases, performance fees. The trust can charge each fee as a percentage of your investment or returns.
What types of VCTs are there?
There are three main types of Venture Capital Trusts:
Generalist VCTs
This is the most common type of Venture Capital Trust. Generalist VCTs invest across a range of different industries and sectors to create a diverse portfolio of investments and spread risk.
Alternative Investment Market (AIM) VCTs
These VCTs primarily invest in companies listed on the AIM. The AIM is a market for smaller, growing companies within the London Stock Exchange. Companies listed on the AIM are often considered higher risk. But they also tend to have higher growth potential.
As the AIM is a stock market, you can usually buy and sell VCT-qualifying shares more easily than shares in privately owned, unlisted companies.
Specialist VCTs
Specialist VCTs target more focused investment objectives, investing in specific sectors and industries with growth potential, such as technology, healthcare, and engineering.
This type of VCT can deliver higher returns if the entire sector performs well. But the reduced diversification of industries can create greater risk. This is because unpredictable events that impact a specific part of the economy could affect the value of all the companies in the Specialist VCT.
What are the advantages and disadvantages of Venture Capital Trusts?
It’s worth considering the benefits and drawbacks if you’re thinking of investing in a VCT.
| Advantages | Disadvantages |
| Income Tax relief | High risk |
| Capital Gains Tax relief | Five-year minimum holding period |
| Tax-free dividends | Shares often hard to sell |
| Multiple small, high-growth companies | Buyback schemes can pay under share value |
| Professional fund managers monitor performance | Entry, management, performance fees |
| Potential for higher returns than alternative investments | Returns sometimes lower than expected |
Before you invest, you should also consider speaking with a qualified financial adviser. This can help you get professional guidance on your personal circumstances ahead of committing your money to a VCT.
What are the differences between Enterprise Investment Schemes and Venture Capital Trusts?
VCTs and Enterprise Investment Schemes (EISs) are both government-approved venture capital schemes designed to drive economic growth, but they differ in the type of tax relief you can receive.
EIS investments differ from VCTs as they involve investing directly into a single company, rather than a portfolio of companies. This generally increases the risk you could lose the money you invest, as it’s more likely a single company could perform below expectations, dragging down the value of your shares.
Both schemes aim to encourage investment in innovative, high-growth ventures. Below, we’ve outlined their key differences:
| Venture Capital Trusts | Enterprise Investment Schemes | |
| Investment type | Portfolio of multiple companies | Direct investment in single company |
| Dividends | Tax-free | Taxable |
| Business relief for Inheritance Tax | Not available | Available if conditions are met |
| Maximum investment with tax relief | £200,000 | £1m or £2m* |
| Minimum holding period | Five years | Three years |
*You can invest up to £2m provided you're investing in Knowledge Intensive (KI) companies.
Both VCT and EIS can qualify for Income Tax relief and are exempt from Capital Gains Tax provided you hold the shares for long enough.
The minimum holding period for EIS shares is two years shorter than for VCTs. This means if you sell your EIS shares before this period, you’ll lose Income Tax relief and your Capital Gains Tax exemption.
Venture Capital Trust tax relief in 2026
The Income Tax relief you get from VCTs is currently 30%. But HMRC will reduce Income Tax relief to 20% for investments made on or after 06 April 2026. HMRC caps the amount of tax relief you can receive from investments at £200,000 or more.
For example, if you invest £200,000 in a VCT you could get £60,000 in Income Tax relief, provided you invest before 06 April 2026. Investing £200,000 after this date would only provide you an Income Tax discount of £40,000. Investing £250,000 after the deadline would still provide a discount of £40,000.
This change was announced in the government’s 2025 Autumn Budget to rebalance VCT tax benefits and make the level of relief comparable with EISs.
Is it still worth using VCTs or are there better alternatives?
Tax relief can make VCT investment attractive as part of a balanced portfolio.
But with HMRC reducing the tax benefits of VCTs, it’s worth considering whether they are still worthwhile or if there are better options to reduce the tax you pay on investments.
VCTs can be a diverse addition to your portfolio, allowing you to invest in unlisted companies with high-growth potential. But performance isn’t predictable.
Savings accounts and ISAs can offer a more secure and consistent return on your money to balance the unpredictable nature of VCT investments. Savings accounts come with different options for levels of accessibility, from Instant Access to Fixed Rate accounts.
Frequently asked questions about Venture Capital Trusts
What’s the maximum amount you can put in Venture Capital Trusts?
There is usually no maximum VCT investment. But there is a limit to the tax benefit you can enjoy.
HMRC caps tax relief on VCT investments of £200,000 or more per tax year.
What happens to a VCT if you pass away?
If you pass away, UK tax law considers your VCT shares as part of your estate. This means they could be subject to Inheritance Tax.
You won’t need to repay tax relief you’ve already claimed, even if you pass away within the five-year holding period.
Where do VCTs go on a tax return?
VCT Income Tax relief is typically claimed through a Self Assessment tax return on the SA101 Additional Information form in the ‘Other tax reliefs’ section.
You can claim relief up to four years after the end of the tax year in which you made the investment. To do so, you’ll need the tax certificate (VCT5) from your VCT provider.
Once you enter the amount you’ve invested (gross value), HMRC will calculate your 30% Income Tax relief.
If you pay tax through Pay As You Earn (PAYE) and don’t usually file a tax return, you can either:
- complete a self-assessment return
- contact HMRC and request a tax code adjustment
What’s the five-year rule with Venture Capital Trusts?
VCTs allow you to claim Income Tax relief on investments of up to £200,000 per tax year, provided you keep your shares for a minimum of five years.
If you sell your shares before five years, any Income Tax relief you’ve already claimed will need to be paid back. And you won’t be able to claim further relief on that investment.
Balance risk and reward
VCTs are government-approved schemes, designed to stimulate economic growth through investments in small businesses with high-growth potential.
They offer benefits like tax relief and portfolio diversification. But they also come with drawbacks, including high-risk, long-term commitments, fees, and potential difficulty selling shares if you change your mind.
Venture Capital Trusts can sometimes increase your wealth significantly. But with the risks involved and an upcoming reduction in Income Tax relief, it’s important to consider whether they align with your financial goals.
Holding cash in high-interest, easy-access savings alongside VCTs lets you grow your wealth as you plan your next investment, while maintaining your financial flexibility for new opportunities.
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