For years the pitch for a Venture Capital Trust started with a single number: 30% income tax relief, the same headline rate as EIS, wrapped in a listed, diversified fund. From 6 April 2026 that number changed. New VCT subscriptions now carry 20% relief, not 30% - and the question every higher-rate taxpayer is typing into a search box is the obvious one: is a VCT still worth it?
The honest answer is that the cut narrows a gap rather than closing the case. A VCT and an EIS investment were never the same thing, and a ten-point drop changes the maths without changing what each is for. Here is what actually moved, and how to weigh the two side by side.
The relief rate fell ten points. What a VCT is for didn't.
What actually changed in April 2026
The change is narrow and specific. From 6 April 2026, income tax relief on new VCT subscriptions is 20%, down from 30%. Subscribe for VCT shares before that date and you keep the old 30% rate on that money; the cut applies only to new subscriptions from the start of the 2026/27 tax year.
Nothing else about the VCT rules moved. You can still claim relief on up to £200,000 invested per tax year. The five-year minimum holding period still applies, dividends are still tax-free, and there is still no capital gains tax on a profitable disposal of the shares. The one feature VCTs never had - loss relief - they still don't.
So the practical effect lands on one line of the spreadsheet. Put the full £200,000 into VCTs and the income tax you can reclaim falls from £60,000 to £40,000. That is a real £20,000 difference, and it is why the question is being asked.
How a VCT differs from EIS
It helps to remember the two are different animals. A VCT is a company listed on the London Stock Exchange that pools investors' money and runs a portfolio of small, early-stage holdings on their behalf. You buy shares in the fund, not in the underlying companies. That buys instant diversification across dozens of businesses and a professional manager, plus those tax-free dividends - the feature income-minded investors tend to value most.
EIS works the other way. You put money directly into individual unlisted companies you have chosen, at 30% relief, with loss relief if one fails and capital gains deferral on a separate gain you reinvest. The trade-off is concentration and risk: you are backing single companies, any of which can go to zero, and you carry the selection job yourself.
The table above sets the headline terms next to each other. The short read: EIS now carries the higher relief rate and the safety net of loss relief; a VCT carries diversification, tax-free income and a single buying decision.
What the cut changes for a higher-rate taxpayer
For a higher-rate or additional-rate taxpayer, the cut changes the comparison without settling it. On relief alone, EIS at 30% now clearly outpaces a VCT at 20% - half as much again per pound, plus loss relief that cushions the failures. If your only question were which route reclaims more tax, the answer leans towards EIS more firmly than it did before April 2026.
But relief is one variable, not the whole equation. A VCT's tax-free dividends can, over a five-year hold, build into a meaningful tax-free income stream that EIS simply doesn't offer - most EIS companies never pay a dividend at all. And one VCT subscription spreads your money across a whole portfolio at a stroke, where assembling comparable diversification through EIS means sourcing, checking and monitoring many separate deals. The cut widens the relief gap; it leaves those structural differences exactly where they were.
The factors that decide whether it earns its place
Rather than a verdict, here are the factors that actually move the decision - things to weigh, not a steer either way:
- Your tax bill. Every one of these reliefs is capped by the income tax you actually owe. The larger and more dependable your liability, the more any of them is worth to you.
- Single-company risk versus a fund. EIS concentrates; a VCT diversifies. How comfortable you are backing individual companies - and doing the work to pick them - points one way or the other.
- Income versus growth. Tax-free dividends suit an investor who wants income; EIS is a growth-and-relief play with nothing paid out along the way.
- The lock-up. A VCT ties money up for five years to keep the relief, against three for EIS. Money you might need sooner belongs in neither.
- Loss relief. EIS has it; VCTs don't. On higher-risk, direct bets, that safety net changes the after-tax downside.
A note on what this isn't
One thing this piece is not: a nudge towards or away from either route. Tax relief lowers risk; it never removes it, and the companies behind both schemes are among the most likely investments you can make to lose the lot. The reliefs hang on your personal tax position and on rules that shift with each Budget - the 2026 cut is itself the proof. Confirm the current position in HMRC's guidance on VCTs and EIS, and take FCA-regulated advice before you commit capital.
Frequently asked questions
Did VCT tax relief really drop to 20%?
Yes. From 6 April 2026, income tax relief on new VCT subscriptions is 20%, down from 30%. Shares subscribed for before that date kept the 30% rate. The other VCT features are unchanged: the £200,000 annual limit for relief, the five-year minimum holding period, tax-free dividends and no capital gains tax on the shares.
Is a VCT or EIS better after the change?
They do different jobs, so better depends on what you want. A VCT is a listed fund: one decision buys a managed, diversified portfolio, with tax-free dividends but no loss relief and a five-year hold. EIS is a direct stake in individual unlisted companies: 30% relief, loss relief and capital gains deferral, with a three-year hold but concentrated, higher risk. EIS now has the higher relief rate; a VCT has diversification and tax-free income. This is general information, not advice.
How much income tax can you reclaim on a VCT now?
Up to 20% of the amount subscribed, on a maximum of £200,000 per tax year, so up to £40,000. As with all these reliefs, you cannot reclaim more income tax than you actually owe in the year, and the relief is only useful to a UK taxpayer.
Do VCTs still pay tax-free dividends?
Yes. Tax-free dividends remain one of the main attractions of a VCT, and the April 2026 change did not touch them. For an income-focused investor, that feature can matter more than the headline relief rate.
How long must you hold a VCT to keep the relief?
Five years from the date of the subscription. Sell before then and the income tax relief is clawed back. That is longer than the three-year minimum for SEIS and EIS, and worth factoring in if you might need the money sooner.