Established food startups will stand to benefit from the Chancellor’s shake-up of venture capital trust (VCT) investment rules, but at the cost of new companies who may now find it even harder to win funding.
New rules coming into effect from April 2026 will allow VCTs – tax-advantaged investment schemes that pool participants’ money and invest in startups – to invest up to £24m in each company they support, up from a previous £12m cap.
The budget also increased VCTs’ annual cap to £10m for each startup under the new rules, giving a significant boost to maturer ‘scale-up’ businesses.
The changes were “straight off the Venture Capital Trust Association wish list”, according to the CEO of the UK’s largest VCT broker, Wealth Club, Alex Davies.
“If you’re an existing VCT or EIS-backed company, this is really news. You’re the winner in this scenario,” said Wealth Club investment manager Nicholas Hyett.
”What happens is the VCT already knows you, probably already likes you, and might have previously wanted to give you more money, but were capped at £12m. Now they can help you with another £12m.
“But if you’re a post-SEIS company, you’ve had your first ticket, maybe you have a product and it’s about to go to market, you might well get left out in the short term, because suddenly VCT are wanting to back more established businesses, and those they already own, to de-risk their portfolios. That means there’s less money available for those new companies.”
Tax relief cut
Further difficulties in raising money may come as a result of a cut in the amount of tax relief offered to investors using VCTs, from 30% to just 20%.
“We’ve seen the effect of cutting income tax relief on VCT’s before. When VCT income tax relief was cut from 40% to 30% in 2006/07, funds raised by VCTs fell 65% year on year. [The financial year] 2026/27 will be no different – with smaller companies facing a drought in funding in the years ahead,” Davies said.
An unexpected boon for startups will be the surge of investors looking to put money into VCTs before the tax advantage disappears.
“We expect this year to be a bumper one for VCT investment,” Davies said.
“Investors will likely pile in before the end of year deadline, and popular VCTs will fill up even faster than usual. It really will be a case of ‘buy now while stocks last’.”
“While it might not achieve the Chancellor’s goal of ‘incentivising funds to seek out higher returns, to ensure they are targeting the highest growth companies’, it will be a great case study in behavioural economics.”
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