Believe it or not, there are currently 92 active unicorn companies headquartered in the UK. No, we’re not talking about mythical creatures with horns; we’re referring to privately owned start-ups valued at over £708,000. In the world of Venture Capital Trusts (VCTs), these unicorns represent the pinnacle of entrepreneurial success and a compelling alternative investment opportunity¹.
Why do VCTs appeal to private investors?
In a word: Tax. It’s a powerful motivator. For UK individual investors, VCTs offer a trio of tax incentives that can make them an attractive addition to a diversified portfolio, more on that shortly.
VCTs aren’t suitable for everyone, but if you’re curious about how they work and whether they might be right for you, read on…
VCT Season: Timing is everything
Unlike many investments, VCTs operate on a seasonal fundraising cycle. Most providers launch offerings from Autumn through early Spring, so if you’re reading this now, there may well be an opportunity to invest².
What is a Venture Capital Trust?
Launched in 1995, a VCT is a publicly listed company that pools funds from investors to support small, high-growth UK businesses. There are three main types:
- Generalist VCTs – the most common, offering broad diversification across sectors.
- AIM VCTs – focused on companies listed on the Alternative Investment Market (AIM).
- Specialist VCTs – targeting specific industries like biotech or financial technology.
A Generalist VCT might hold shares in over 140 companies, spreading risk across a wide portfolio. Since 2018, over £1.7 billion has been invested in small UK companies via VCTs³.
Fuelling the UK’s Unicorn pipeline
The UK is one of the world’s leading centres for entrepreneurship. VCT-backed businesses generated £18.18 billion in revenue and £3.7 billion in exports in the 2022–23 tax year, according to the Venture Capital Trust Association⁴.
How do bright ideas become household names like Zoopla, BrewDog, or SumUp? Often, it’s thanks to early-stage funding from VCTs. These trusts help transform promising concepts into scalable businesses, with expert managers vetting thousands of funding applications annually, but only 10–15 companies per VCT typically receive investment.
VCTs invest across sectors, including:
- Health Technology
- Financial Technology
- Deep Technology
- Bioscience
- Software
Most target companies are under 7.5 years old and valued below £15 million.
Risks to consider
While the tax benefits are compelling, VCTs are speculative investments. They involve shares in small, unquoted companies that may be difficult to sell. Failure rates can be as high. VCTs are not suitable for inexperienced or risk-averse investors. Additionally, tax legislation can change, so professional advice tailored to your circumstances is essential.
Though the £200,000 annual contribution limit exists, most investors contribute less. Interest in VCTs has grown as pension contribution limits have tightened.
Tax incentives: The triple advantage
To encourage private investment in UK innovation, the government offers generous tax reliefs:
- Income Tax Relief – Up to 30% on investments up to £200,000 per tax year. Example: Invest £20,000 and receive £6,000 off your income tax bill. (Shares must be held for 5 years to retain relief⁶.)
- Tax-Free Dividends – Dividends paid on VCT shares are exempt from income tax.
- Capital Gains Tax Exemption – No Capital Gains Tax on profits if shares are held for at least 5 years.
Some VCTs also offer a Buy-Back option to help investors exit after the minimum holding period.
Oversight and selection
Not all VCTs are created equal. At Legal & Medical, our product committee rigorously reviews VCT offerings against strict criteria to ensure only the best options are recommended. These assessments are updated regularly.
VCTs follow a structured cycle: fundraising, reporting and dividend payment, with periods when funds are locked and inaccessible.
Who invests in VCTs?
There is no “typical” VCT investor. You might be:
- A beneficiary of an inheritance
- A company owner who is looking to reduce the tax burden after withdrawing capital from their company
- Someone who has sold a buy-to-let property
- An individual who has maximised their ISA allowance
- Someone who has no remaining Annual Allowance and cannot contribute to pensions further
- An active pension saver looking to diversify
If you have a 5+ year investment horizon and want to diversify your portfolio, VCTs could be worth considering and discussing with your financial advisor.
In summary: Are VCTs right for you?
VCTs may suit you if you’re:
- Looking to reduce your income tax liability
- Seeking tax-free income to supplement your earnings or pension
- Have the risk tolerance suited to more speculative investing for at least part of your portfolio.
- 5 years + until you need to access the capital.
Remember, tax reliefs depend on your personal circumstances and may be subject to change.
This overview serves as an introduction only. VCTs are not suitable for everyone, and your financial goals, risk tolerance, and lifestyle should all be factored into any decision. Our advisers are ready to help you evaluate current VCT opportunities and their fit for your needs.
Tax treatment depends on individual circumstances and may change with legislation. This article reflects understanding as of September 2025. You should not invest in or deal in any financial product unless you understand its nature and the extent of your risk exposure. You should also be satisfied that it is suitable for you in light of your circumstances and financial position. Always seek professional advice before making investment decisions.
References:
1 Beauhurst – The Full List of UK Unicorn Companies
2 Association of Investment Companies (AIC) – VCT Fundraising Report 2024/25
3 HM Revenue & Customs – Venture Capital Trusts Statistics 2025
4 Venture Capital Trust Association Budget Submission 2023
5 HM Revenue & Customs – HS298 Capital Gains Tax and Venture Capital Trusts (2025)