VCT vs EIS in 2026: Which is Better After the Relief Cut?

From 6 April 2026, Venture Capital Trust income tax relief was cut from 30% to 20%. EIS income tax relief was unchanged at 30%. That ten percentage point gap changes the calculus for investors who have historically used both — or who have leaned on VCTs for the combination of tax relief and liquidity. This guide sets out the current comparison clearly.

What changed in April 2026

The Autumn Budget 2025 announced a reduction in VCT income tax relief from 30% to 20%, taking effect from 6 April 2026. EIS income tax relief was left unchanged at 30%. The government simultaneously increased the company-side limits for EIS — expanding the gross assets threshold and annual raise limits — making EIS available to a wider range of companies. The net effect: EIS became materially more attractive relative to VCT for the first time since both schemes were established.

Where VCT still wins

Liquidity. VCTs are listed on the London Stock Exchange. You can sell your shares, subject to the five-year minimum holding period for tax purposes. EIS investments are in unlisted companies — you cannot sell until a liquidity event (acquisition, IPO, or secondary sale). For investors who want eventual access to their capital without waiting for a company exit, VCTs are clearly preferable.

Tax-free dividends. VCTs pay dividends which are exempt from income tax. For investors seeking income as well as tax relief, this is a meaningful advantage. EIS companies rarely pay dividends — the investment case is almost entirely capital growth.

Professional management with visibility. VCTs are managed funds with published NAVs, annual reports, and regulatory oversight. The portfolio is visible. EIS investments — particularly direct investments — require your own due diligence and ongoing monitoring.

Where EIS now wins more clearly

Higher income tax relief. 30% vs 20% is a significant gap — on a £100,000 investment, the difference is £10,000 of upfront tax relief. For higher-rate taxpayers maximising tax efficiency, this gap now decisively favours EIS.

CGT deferral. VCTs offer no CGT deferral. EIS allows you to invest a capital gain and defer the CGT indefinitely until the EIS shares are sold. For investors with property gains, business sale proceeds, or any other crystallised gain, this feature has no VCT equivalent.

IHT relief. EIS shares held for two years qualify for Business Relief, removing them from the estate. VCT shares do not qualify for Business Relief — they remain in the estate. For investors with IHT concerns, this is a substantial difference.

Higher investment limits. The VCT annual limit is £200,000. EIS allows up to £1 million per year (£2 million for knowledge-intensive companies). Investors deploying significant capital get substantially more relief through EIS.

The practical answer for most investors

Before April 2026, many investors split their annual tax-advantaged venture allocation between VCTs and EIS — VCTs for the liquidity and income, EIS for the CGT deferral and IHT benefits. The equal 30% relief made this a reasonable balance.

After April 2026, the calculus has shifted. Unless liquidity or dividend income is specifically important to you, EIS now offers a clearly superior tax package. The ten percentage point income tax relief gap, combined with CGT deferral and IHT relief that VCTs cannot match, means investors who were previously VCT-heavy should review their allocation.

That said — VCTs and EIS are not mutually exclusive. Using both within a year still makes sense for investors who want both the income (VCT dividends) and the full EIS tax package. The question is where to allocate the marginal pound of tax-advantaged investment, and since April 2026 the answer is increasingly EIS.