Venture Capital Trusts turn 30: how relevant are they in 2025?
Scott Kent · Posted on: August 6th 2025 · read
First introduced in 1995 to encourage investment in younger UK companies and help create jobs and generate economic growth, we find ourselves in the 30th year of Venture Capital Trusts.
30 years on, it is worthwhile recapping what VCTs are, how they work and why they still have a place in 2025.
In October 2024, Chancellor Rachel Reeves confirmed in her Autumn Budget that new shares of VCTs will continue to receive income tax relief for another ten years at the very least, reaffirming their position as a viable investment vehicle in the UK.
So, what is a VCT?
Venture Capital Trusts, or VCTs as they are commonly referred to, are listed investment vehicles that allow private investors to invest in early-stage UK companies, which are either unquoted (private) or listed on the Alternative Investment Market (AIM).
In return for purchasing new shares in a VCT, investors are rewarded with 30% income tax relief on the new purchase, subject to an overall investment cap of £200,000 per tax year, providing that the shares are held for a minimum of five years (otherwise, HMRC will request the tax relief to be repaid back). Additionally, VCTs offer tax-free dividend income that does not need to be reported to HMRC, with no capital gains tax payable on any gains generated when the shares are subsequently sold.
As an example, a £50,000 investment could provide you with up to £15,000 of income tax relief, providing you have an income tax liability to offset. Additionally, you could also potentially receive a regular dividend income in the region of 3-5% per annum – although the dividends are not guaranteed.
Unlike some other tax-efficient vehicles, VCTs will typically invest into 20-50 underlying companies, with some of the largest VCTs holding in excess of around 100 companies. This offers diversification to investors, with some VCTs marketing themselves as ‘generalist’ VCTs by investing into various sectors such as technology, consumer services, health and construction. Some of the more well-known companies that VCTs have invested into include Zoopla, Gousto, Cazoo, Secret Escapes and Virgin Wines.
Who might a VCT be suitable for?
- For those with high income tax liabilities, a VCT could help reduce what income tax is paid. This could include retirees paying higher rate income tax on their pension income, landlords paying income tax on their rental income or where an individual has surrendered their investment bond and a chargeable event gain has subsequently been created, which will also be assessable for income tax purposes. In all these scenarios, a VCT could help reduce the overall income tax liability paid by the individual.
- Following on from point one, investors with restricted pension allowances may also benefit from investing in a VCT alongside their pension as a way to offer a tax-efficient planning strategy over the longer term. It is not uncommon to see multiple VCT purchases recommended across consecutive tax years with the view that the first VCT is sold after year five so that it can be reinvested in year six and so on – providing a tax-efficient strategy to compliment the pension.
- Business owners could also benefit from a VCT to allow them to extract more profits from their company in a more tax-efficient manner, providing that they have liquidity available to invest the initial capital of course.
- Lastly, VCTs may be suitable for investors with large investment portfolios whereby they would like exposure to smaller UK companies that they may not otherwise get from investing in typical collective funds such as open-ended investment companies.
Final thoughts
Despite the tax advantages available, due care must be taken as VCTs, by their very nature, are deemed to be high risk investments and you may get back less than what you invested. Therefore, other factors must be considered first before investing into a VCT and it is highly advisable to speak to a financial advisor first – not least because VCTs typically charge higher fees for direct investment.
In a world where tax allowances are frozen, capital gains tax rates have risen, ISA allowances remain frozen until 2030 (the last increase was to £20,000 in April 2017) and defined contribution pensions are now being considered within the scope of Inheritance Tax, tax efficiency is becoming increasingly more difficult to find.
"Following Labour’s announcement that VCTs will run unchanged until 6th April 2035, VCTs remain a suitable consideration as part of a balanced investment strategy that your financial advisor can help tailor with you."
How we can help you
Should you wish to explore VCTs in more detail, please contact a member of the MHA Wealth team for further guidance, or to discuss any other investment and financial planning needs.
Risk Warnings
Don’t invest unless you’re prepared to lose all the money you invest. VCTs are high-risk investments, and you are unlikely to be protected if something goes wrong.
Capital at risk. Past performance is not a guide to future performance. The value of an investment and the income generated from it can go down as well as up, and is not guaranteed, therefore you may not get back the amount originally invested.
Investment markets and conditions can change rapidly. Investments should always be considered long-term. VCTs are high risk investments and there may be no market for the shares should you wish to dispose of them. The market for VCTs is likely to be very illiquid, particularly in the early years, and there may be no market for the shares should you wish to dispose of them.
Important information
MHA Wealth is the trading name of MHA Wealth Ltd, a company registered in England (1916615) with registered office at The Pinnacle, 150 Midsummer Boulevard, Milton Keynes, MK9 1LZ. MHA Wealth is authorised and regulated by the Financial Conduct Authority (FCA) with registered number 143715 and is a member of the London Stock Exchange. MHA Wealth is a member of the MHA group. Further information on the MHA group can be found at https://www.mha.co.uk/details-of-mha-uk-entities.
This is a marketing communication for general information only, and is not intended to be individual investment advice, a recommendation, tax, or legal advice. The views expressed in this article are those of MHA Wealth or its staff and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. In particular, the information provided will not address your personal circumstances, objectives, and attitude towards risk.
This information represents our understanding at the time of publication of current law and HM Revenue & Customs practice. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. You are therefore recommended to seek professional regulated advice before taking any action.
