UK Budget 2025

The 2025 Autumn Budget, delivered by Rachel Reeves on 26 November, contained a package of reforms aimed at balancing fiscal pressures, raising revenue, and re-shaping incentives for investment in growth companies. For anyone involved with early-stage or scale-up firms, or considering investing via EIS / Venture Capital Trusts (VCTs), several of the announced changes are especially significant.

Key Changes to EIS / VCT Schemes

Expanded eligibility for companies

• From 6 April 2026, the government will raise the gross-assets test for qualifying companies under EIS/VCT: the threshold before share issue rises from £15 million to £30 million, and after share issue from £16 million to £35 million.

• The annual fundraising limit for companies will increase from £5 million to £10 million, and for “knowledge-intensive companies” (KICs) from £10 million to £20 million. 

• The lifetime investment limit doubles: from £12 million to £24 million for standard companies, and for KICs from £20 million to £40 million. 

What this means: More companies, including those already beyond the earliest “seed” phase, will now be eligible for EIS/VCT investment. This widens the pool of potential investment targets, benefiting founders seeking growth capital and investors looking for later-stage opportunities.

Trade-offs: VCT relief reduced, EIS unchanged

• From 6 April 2026, the income tax relief for VCT investors will be lowered from 30% to 20%. 

• The Budget did not alter the upfront income-tax relief for EIS investments; EIS rules remain broadly unchanged in that respect. What this means: While VCTs may become less attractive due to weaker upfront tax relief, EIS remains more competitive for tax-efficient investing. Investors may consequently favour EIS over VCTs, particularly those focused on early-stage or growth potential companies rather than dividend income.

Broader Tax & Pension-Related Changes | Indirect Effects

Beyond EIS/VCT, other Budget measures affect investors and employees more widely and shape the context in which growth investing takes place:

• The Budget introduces a cap on salary-sacrifice pension contributions exempt from National Insurance (NI). From April 2029, only the first £2,000 of pension contributions made via salary sacrifice will be NI-exempt. Contributions beyond this will be subject to standard NI. 

• This change may reduce the attractiveness of salary-sacrifice pension arrangements, historically used by many higher-earning employees to reduce tax and NI liabilities. 

• Other headline tax changes announced in the Budget, such as higher taxes on dividends, savings and property income, contribute to an overall shift in the UK tax environment. 

Why it matters for EIS / growth investing: With pensions and savings becoming relatively less attractive (or at least more constrained), some investors may look more actively at EIS as a tax-efficient, equity-based way to deploy capital — especially investors seeking long-term growth over passive income.

What This Means for Entrepreneurs, Start-ups and Investors

For entrepreneurs/founders and growth companies

• The expanded eligibility under EIS/VCT means more firms, including those scaling up, can now access tax-efficient investment. This should support growth-stage fundraising, making EIS a more flexible tool for scaling businesses.

• With increased annual and lifetime limits, companies may now raise larger rounds under EIS than before, giving more breathing room for growth, hiring and scaling R&D or operations.

• VCT investors may shift their attention more towards EIS-eligible opportunities, potentially increasing capital flowing into private, early-stage and scale-up firms.

For investors (angel, high-net-worth, and others)

• EIS remains the more attractive route for backing early-stage or growth companies, especially given VCT relief reduction.

• EIS’s unchanged tax relief, combined with its broader availability, may prompt a wave of new investment interest, particularly from investors looking for long-term growth rather than short-term income.

• The changing pension and savings tax landscape may push some investors to reallocate some capital from pensions or savings ISAs towards equity-based, high-growth opportunities via EIS.

Bottom Line

The 2025 Budget strikes a balanced, but deliberate, shift in the UK’s approach to incentivising investment. On one hand, it tightens tax and pension-related perks (e.g., pension salary sacrifice cap, increased dividend/savings tax). On the other hand, it makes EIS and VCT more accessible and flexible, signalling a renewed push to channel capital into the private, high-growth segment of the economy.

For businesses and investors operating in the growth/start-up space, this Budget could be a turning point: EIS is now more suited than ever to support scaling companies — and for investors, particularly those prepared to commit long-term, EIS may look increasingly competitive compared with traditional savings