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In their Autumn 2025 Budget, the government has confirmed a set of reforms that impact the UK's early-stage start-up and scale-up ecosystem.
These touch a range of topics relevant to the community. In order of importance:
1. Reduced VCT tax relief (30% to 20%)
2. Increased EIS-eligible capital raising limits
3. Increased EIS-eligible company size limits
4. Expanded EMI limits
5. Unchanged SEIS
Below is a founder-friendly breakdown of the changes and how it may affect your next raise.
1. VCT income tax relief is being reduced
After nearly twenty years at 30 percent, VCT income tax relief will fall to 20 percent. This has received mixed reception, as it removes the parity with the tax relief offered by EIS (30%). Whilst there is logic in the tax benefit reflecting the relative investment risk (i.e., rewarding the riskier. concentrated EIS investment with additional tax relief versus a potentially less risky diversified VCT), the change risks reducing total capital availability to the start-up/scale-up ecosystem.
Reduced tax relief will reduce overall VCT fundraising. This will be partly offset by a portion of would-be VCT investors switching to EIS investing to retain the 30% relief, but not all will make the switch (be it due to risk appetite or other reasons), and will instead allocate their capital elsewhere.
In the immediate term, VCTs have seen a spike in fundraising as investors look to front-run the April 2026 implementation. Major VCT broker Wealth Club reported a 538% increase in VCT subscriptions on their platform the day after the budget versus an average November day last year. However, the fear is the demand will be structurally lower going forward. Wealth Club observed that when VCT tax relief was cut from 40% to 30% in 2006/7, fundraising fell 65% YoY.
2. Companies can raise significantly more EIS-eligible capital
The annual and lifetime fundraising caps for companies raising from both EIS investors and VCTs are to be increased from April 2026.
| Annual limit | Lifetime limit | |
| Standard companies | £5 million to £10 million | £12 million to £24 million |
| Knowledge intensive companies | £10 million to £20 million | £20 million to £40 million |
Companies will be able to raise larger rounds while still offering investors EIS/VCT tax advantages. As companies are raising more capital at a higher velocity to remain globally competitive, these reforms are a welcome improvement to British venture capital markets.
3. Larger companies can now qualify for EIS
EIS was previously tailored to small businesses. It worked well for seed stage companies but felt restrictive once a company began growing and accruing material assets. The government has now increased the thresholds that determine whether a company is eligible.
New limits from April 2026:
Maximum gross assets before investment: £15 million to £30 million
Maximum gross assets after investment: £16 million to £35 million
This increase in the gross asset threshold will capture more 'scale-up' businesses in a bid to improve capital availability for this underfunded segment. If you have previously been close to the cap during a funding round or acquisition, this expansion offers a welcome breathing room.
There were no changes to the SEIS cap, remaining at £200,000 per fiscal year and a gross asset cap of £350,000.
4. EMI improvements open the door for stronger talent strategies
As a reminder, the Enterprise Management Incentive ("EMI") scheme is a tax-advantaged Employee Share Option Plan ("ESOP") designed to help smaller, high growth companies acquire and retain talent. Under EMI, employees pay no income tax of NICs on grant or exercise of options, and potentially benefit from business asset disposal relief on capital gains (reducing CGT to 10% on qualifying gains). Upon exercise, Employers benefit from a corporation tax deduction equal to the delta between market value at exercise and the price paid by the employee at granting.
Also, as a reminder, you cannot claim EIS relief on shares acquired through EMI options: EIS is for new share subscriptions, not option exercises.
The EMI scheme also received a substantial expansion in the Budget.
New EMI limits:
Maximum employees: 250 = 500
Maximum gross assets: £30 million =
£120 million
Maximum share option value: £3 million =
£6 million
For growing startups this means greater ability to attract and retain talent while continuing to benefit from EIS eligibility.
5. SEIS remains unchanged but becomes more strategically valuable
Whilst there were no direct changes to the SEIS scheme in the Budget, the expansion of the EIS programme will create more certainty in a business' fundraising journey, and potentially a strong investor environment to understand the value of SEIS as part of a long-term investment narrative.
What founders should do next:
Fundraising Pre-April 2026: If you happen to be in market or about to launch your fundraise, the timing is apt – VCTs will likely continue to benefit from an influx of capital before April 2026 and will want to deploy this capital to minimise cash drag on their performance. With expanded EIS limits, more businesses are now eligible to benefit from this capital availability.
Fundraising Post-April 2026: VCTs will likely remain a prominent part of the ecosystem, but expect an increase in investors looking to go direct in order to access the EIS tax benefit. Ensure you have a capital formation and investor relations approach that can cater to this segment.
Talent Management: At the risk of stating the obvious, talent is the lifeblood of the venture ecosystem and is what ultimately drives return, and therefore capital. In a world of global talent mobility, the EMI changes are an important component of keeping the UK as a compelling talent destination of scale. Be sure to leverage the benefits of EMI to attract the best possible talent, tax-advantaged ESOPs are amongst the best ways of aligning post-tax outcomes with maximum equity value creation.
Final thought: A rare and meaningful win for UK startups
Whilst the VCT reduction is slated to save approximately £125m by 2027/28 for the Treasury, this gain is small in the context of the wider £26bn projected tax increase of the Autumn budget. Back of the envelope maths suggest even a third reduction in VCT investment (which is half the two-third reduction we saw in 2006/07) could reduce annual VCT investment by c.£300m from c.£1bn to c.£700m. Far outstripping the benefit at a time when UK innovation feels more critical than ever.
Nonetheless, the budget includes material improvements in the EIS and EMI scheme, for which we are thankful and expect to offset a lot of the VCT-related pain.
As noted, talent is what drives UK Plc, and of that we feel bullish!
Read our excellent summary of the 2025 Budget from a tax perspective here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
