COMPLIANCE AND REGULATIONS
The New Rules for EIS and VCTs. The Autumn 2025 Budget Says Time To Scale-Up
A strategic guide to the doubled EIS limits, the VCT rate reduction, and the critical planning window before April 2026.
⊛ 5 min read | By Brent Morrison | December 2025
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The New Rules For EIS and VCTs. What’s Changed?
The Autumn 2025 Budget represents a defining moment for the UK’s venture capital landscape. For over a decade, the focus of tax-advantaged investing has been squarely on the “start-up”, getting companies off the ground. While successful, this approach created a structural ceiling, often forcing high-growth British businesses to exit prematurely or list on AIM solely to access capital, rather than for strategic benefit.
The Chancellor has now signaled a fundamental pivot: we are moving to a “Scale-Up” ecosystem.
“This is what they said: to back winners through their critical growth phases, extending support up to valuations of £30m-£40m.”
This is not merely a tax tweak; it is an industrial strategy designed to keep high-performing companies private for longer. For investors and founders, the landscape has shifted. The Enterprise Investment Scheme (EIS) has emerged as the clear winner, with doubled limits that accommodate Series B and C funding rounds. Conversely, Venture Capital Trusts (VCTs) face a reduction in relief, re-establishing the risk premium between single-company and portfolio investing.
This guide details the structural changes, the immediate “planning windows” available before April 2026, and the strategic moves required to capitalise on this new regime.
1. The Cost of the “EIS Cliff”
Under the previous regime, successful companies faced a “funding cliff.” Once a company raised £12 million or accumulated £15 million in gross assets, it effectively “aged out” of EIS eligibility. This created a perverse incentive: high-growth companies were penalised for their success.
Founders were often forced to sell to Private Equity or list prematurely to secure further funding, as they could no longer offer the 30% tax relief that incentivised their early backers. This “EIS Cliff” resulted in a drain of UK intellectual property and talent, as scaling firms were sold off just as they began to generate significant value.
The Solution: “Super-Sized” EIS Limits
Effective from 6 April 2026, the government is effectively removing this cliff for the vast majority of scale-ups. The expansion of the EIS limits is the most significant technical change to the scheme in a decade.
By doubling the annual raise limit to £10 million and the lifetime limit to £24 million, the Budget acknowledges that modern scale-ups, particularly in tech and manufacturing, require deeper pools of capital to compete globally. Furthermore, the relaxation of the Gross Assets Test is a critical technical unlock. The new post-investment limit of £35 million ensures that companies can retain a strong balance sheet without alienating investors.
Comparative Analysis: The New EIS Landscape
The following table outlines the specific threshold increases effective April 2026. Note specifically the massive capacity boost for Knowledge Intensive Companies (KICs).
| Metric | Old Rule (Current) | New Rule (April 2026) |
|---|---|---|
| Annual Raise Limit | £5 million | £10 million |
| Lifetime Raise Limit | £12 million | £24 million |
| KIC Lifetime Limit | £20 million | £40 million |
| Gross Assets (Post-Inv) | £16 million | £35 million |
2. The VCT “Sting in the Tail”
Venture Capital Trusts (VCTs) have long been the favored vehicle for High-Net-Worth individuals seeking exposure to private markets, offering a “triple lock” of benefits. However, from a policy perspective, this pricing was inconsistent. The government has determined that the risk profile of a diversified VCT portfolio no longer justifies the same 30% relief as single-company EIS investments.
The Change: From 6 April 2026, Income Tax relief on VCT investments will fall from 30% to 20%. This change re-establishes the “Risk Premium” of EIS.
The Value: The “VCT Rush” Window
While the rate cut is negative for future returns, it creates a distinct actionable planning window. The change is not immediate. Investors have the remainder of the 2025/26 tax year to deploy capital at the current 30% rate.
The cost of delay is significant. For a Higher Rate taxpayer maximising their £200,000 VCT allowance, the difference between investing now versus post-2026 is a £20,000 loss in immediate cash tax savings.
3. SEIS: The Unchanged “Gold Standard”
In a budget characterised by movement, the silence regarding the Seed Enterprise Investment Scheme (SEIS) is significant. The government has left the SEIS rules entirely untouched.
This stability cements SEIS as the undisputed “gold standard” for high-risk capital. By reducing VCT relief to 20% while maintaining SEIS at 50%, the government has widened the incentive gap to a massive 30 percentage points. For investors willing to back pre-revenue startups, the tax shield remains formidable: up to 72.5% loss mitigation depending on the tax position.
4. Strategic Comparison: The New Hierarchy
Post-April 2026, the UK venture capital market will operate on a clear three-tier hierarchy based on risk and stage. Investors must align their portfolios not just with potential returns, but with the tax efficiency of the vehicle.
| Feature | SEIS (Seed) | EIS (Scale-Up) | VCT (Portfolio) |
|---|---|---|---|
| Risk Profile | Very High | High | Medium |
| Income Tax Relief | 50% | 30% | 20% (Post-2026) |
| Tax-Free Dividends | No | No | Yes |
5. Client Advisory Actions
The changing landscape requires immediate action for both capital allocators and those seeking funding.
For Investors: Execute the “VCT Rush.” Review your liquidity and tax liabilities for the 2024/25 and 2025/26 tax years. Utilise your full VCT allowance now to lock in the 30% relief before it is permanently reduced. Additionally, re-evaluate the risk/reward ratio of VCTs versus managed EIS funds post-2026.
For Founders: Review fundraising roadmaps. If you previously feared “aging out” of EIS eligibility, your runway has extended. Evaluate whether the new limits allow you to stay private for an additional 2-3 years, and leverage expanded EMI options to retain senior talent.
Common Questions on the 2025 Budget Changes for EIS and VCTs
When do the new EIS and VCT rules take effect?
Will existing VCT investments lose their 30% relief?
Does the VCT rate cut affect tax-free dividends?
Can my company raise EIS funds if we have over £15m in assets today?
Capitalise on the “VCT Rush” Window
The clock is ticking on 30% VCT relief. Ensure your investment strategy is optimised before the April 2026 deadline.
- ✓ Secure 30% Tax Relief with Strategic 2025/26 Deployments
- ✓ Extend Your Runway with New Series B/C EIS Planning
- ✓ Balance Risk & Reward with Optimised SEIS & EIS Allocations
Don’t let the rules change without a plan. Our team can help you navigate the new Scale-Up landscape.
Ready to Navigate the New 2025 EIS and VCT Changes?
Whether you are a founder preparing for a larger raise or an investor looking to maximise relief before 2026, the new rules require a new strategy.
Get a clear, 90-second assessment of your eligibility and options under the new Autumn Budget rules.
Clarify your position. Secure your relief.
ABOUT THE AUTHOR
Brent Morrison ACA CTA
Chartered Accountant and Chartered Tax Adviser
Member of the Institute of Chartered Accountants (ICAEW) and Taxation (CIOT) | Director at OutRise | He has over 12 years of experience advising high and fast growth companies across the UK. His approach combines a deep understanding of structuring data and systems, coupled with practical, real-world business experiences.
