Investors poured money into venture capital trusts (VCTs) following the Chancellor’s decision to cut tax relief from 30% to 20% from April.
VCT broker Wealth Club said the amount invested was up 538% on 27 November compared with the average November day last year.
Alex Davies, CEO and founder of Wealth Club, said: “The decision to cut VCT relief from 30% to 20% has sparked a Black Friday rush for the top VCT managers.
“The sudden urgency makes sense. VCTs have limited capacity, and even in normal times top managers often sell out fast. With investors keen to lock in 30% income tax relief before next year, there will be a real “buy it while stocks last” dynamic to the VCT market this year.
“We suspect this is just the start of the stampede – and we expect demand to remain high for the rest of the tax year. However, while this year’s shelves will be stripped bare, the outlook for next year is less certain.
“Back in 2006, the last time tax relief on VCTs was cut by 10%, funds raised fell 65% year-on-year. Only time will tell if investors prove less sensitive this time round.”
Most investors are initially attracted to VCTs for the tax breaks, and they are generous. Investors can get up to 30% back in income tax relief up front (20% from April 2026), any dividends paid by the VCT are tax free and growth is free of capital gains tax.
However, VCTs are more than just a tax planning tool. They are a way for UK investors to access fast growing smaller companies. Revenue growth from VCT investees far outstrips main market listed companies, and the result has been some attractive returns for investors over the longer term.
Who should consider VCTs?
VCTs are higher risk, and while they’re listed on the stock market, in order to qualify for tax relief investors must hold the shares for at least five years before selling – making them inherently long-term investments.
Unlike most conventional funds and shares the minimum amount you can invest is comparatively high – often £3,000 or more. All of this means they are best suited to wealthier or more sophisticated investors.
VCTs are popular with two groups in particular.
The first is higher earners or wealthier investors who are limited in what they can put into more mainstream tax wrappers. Those who already use full £20,000 ISA allowance or whose pension contributions are tapered due to the amount they earn. The £200,000 a year annual VCT allowance is generous and can save higher earners up to £60,000 in upfront income tax (£40,000 from April 2026).
The second group is those in, or near, retirement who use VCTs’ tax free dividends to supplement income from other sources. Because they’re higher risk, VCTs shouldn’t be considered a replacement for a pension, but they can help to top-up income from more conventional sources.
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