VCT vs EIS: 2026/27 Tax Reliefs Compared

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Table of Contents

VCT vs EIS: key differences for 2026/27
How VCT Income Tax relief changed in April 2026
How EIS Income Tax relief works
Tax-free dividends or loss relief?
Company-level qualification and 2026 changes
When might a VCT be more suitable?
When might EIS be more suitable?
Risks and due diligence
Official sources

Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) both encourage investment in smaller, higher-risk UK companies, but they work differently. The best fit depends on whether an investor prioritises diversification and tax-free dividends or direct-company selection, stronger upfront relief and loss relief.

This comparison reflects the rules applying to qualifying investments in the 2026/27 tax year.

VCT vs EIS: key differences for 2026/27

Feature	VCT	EIS
Investment structure	Shares in a listed investment company holding a portfolio of qualifying businesses.	Shares issued directly by a qualifying trading company, or through an EIS fund.
Upfront Income Tax relief	20% for qualifying subscriptions made from 6 April 2026.	30% on qualifying subscriptions.
Annual investor limit	Relief on up to £200,000.	Relief on up to £1 million, or £2 million where at least the amount over £1 million is invested in knowledge-intensive companies.
Minimum holding period	Generally five years to retain upfront relief.	Generally three years from the relevant date.
Dividends	Dividends on qualifying VCT shares are exempt from Income Tax, subject to scheme rules.	Dividends are normally taxable under the usual dividend rules.
Capital gains on disposal	Gains on qualifying VCT shares are exempt from CGT; losses are not allowable.	Gains can be exempt where Income Tax relief was obtained and retained; qualifying losses may receive relief after deducting Income Tax relief.
CGT deferral	No general reinvestment deferral relief.	Eligible gains can potentially be deferred by investing in qualifying EIS shares.
Diversification	A VCT usually provides a managed portfolio.	A direct EIS investment creates exposure to the selected company; an EIS fund may spread risk.

How VCT Income Tax relief changed in April 2026

For new VCT shares issued on or after 6 April 2026, upfront Income Tax relief is 20%, reduced from 30%. Relief is limited to the investor’s Income Tax liability and is available only on qualifying new subscriptions, not ordinary purchases of existing VCT shares on the market.

An investor subscribing £50,000 could receive up to £10,000 of VCT Income Tax relief, assuming sufficient Income Tax liability and all conditions are met. The shares normally need to be held for five years to avoid withdrawal of the relief.

For a detailed explanation of VCT dividends, disposals and withdrawal rules, see our 2026/27 VCT tax-reliefs guide.

How EIS Income Tax relief works

EIS relief remains 30% of the qualifying subscription. A £50,000 qualifying investment could therefore reduce the investor’s Income Tax liability by up to £15,000. The relief cannot create a repayment beyond tax otherwise due, and eligibility depends on both the investor and company meeting detailed conditions.

EIS shares may be treated as issued in the previous tax year, subject to that year’s limit and the claim rules. This carry-back flexibility can be valuable for tax planning. VCT relief is normally given for the tax year in which the VCT shares are issued and does not provide the same carry-back mechanism.

Tax-free dividends or loss relief?

VCTs can be attractive to investors seeking tax-free dividend income from a managed portfolio. However, investment performance and dividends are not guaranteed, charges vary, and a sale may be difficult or occur at a discount to net asset value.

EIS does not offer tax-free dividends, but a qualifying loss on disposal can potentially be set against income or capital gains after reducing the loss by Income Tax relief retained. This can soften—but never remove—the commercial risk. VCT losses are not allowable for CGT.

Company-level qualification and 2026 changes

Both regimes invest under detailed risk-to-capital, trade, age, gross-assets and funding-limit conditions. From 6 April 2026, Finance Act changes increased several company investment and gross-assets limits for most qualifying companies. For example, relevant annual investment limits can reach £10 million for non-knowledge-intensive companies and £20 million for knowledge-intensive companies, with higher lifetime limits of £24 million and £40 million respectively. Special lower limits continue for specified companies.

These company limits are different from the amount an individual investor can subscribe and claim relief on.

When might a VCT be more suitable?

The investor wants portfolio diversification managed by a VCT.
Tax-free dividends are an important objective.
The investor accepts a five-year holding requirement and VCT fees.
The £200,000 annual relief limit is sufficient.

When might EIS be more suitable?

The investor wants 30% upfront relief and can tolerate direct early-stage risk.
CGT deferral or potential loss relief is valuable.
The investor needs the higher annual investment ceiling.
The three-year minimum holding period is preferable, while recognising the investment may remain illiquid for much longer.

Risks and due diligence

Tax relief should not be the sole reason to invest. VCT and EIS investments can fall substantially in value, may be illiquid and can lose tax status if scheme conditions are breached. Check the manager’s or company’s record, portfolio concentration, fees, valuation policy, exit assumptions and the evidence supporting qualification. Financial promotions and suitability advice are regulated matters.