British Smaller Companies VCTs launch £60m offer as AI investments shine in the portfolio
Jonathan Moyes, head of investment research at Wealth Club commented: “Whilst there might be several mighty oaks forming in the portfolio, the British Smaller Companies VCTs start out by looking for promising acorns. The team seeks to back businesses that are typically generating revenues of more than £1m. Initially, it will invest between £2 and £6m to unlock the next phase of growth. In addition, the VCTs are well known for following their money, investors can expect the VCTs to make follow-on investments into companies that show promise.
Historically, the manager has done a good job of backing businesses that can make the jump from startup to potential world-beater.
Despite the name, many of the VCTs’ holdings can no longer be considered small. Notable recent successes in the portfolio include Xapien, an AI-powered due diligence platform. In September 2026, it raised $56m in a round led by a growth-focused US private equity firm after growing revenues by 350% in the prior two years. Summize is another, the AI contract intelligence platform raised $50m in early 2026 after doubling revenue in the prior 12 months. Others include Matillion (largest holding), the data analytics platform and Unbiased, the financial adviser directory.
Historically, a criticism might have been that the VCTs were a little top-heavy, the success of Matillion saw it become by far the largest holding in the portfolio. Today, several other positions have performed strongly, the result is a more well-rounded and diversified portfolio.
Due to the drop in initial tax relief to 20%, VCTs are raising less this year. However, I would not be surprised to see this VCT remain popular with investors, particularly given it is raising much less than last year. If investors like what they see, they should consider acting promptly, it may not be around for long.”
Why VCTs are worth investing in
Most investors are initially attracted to VCTs for the tax breaks, and they are generous. Investors can get up to 20% back in income tax relief up front, any dividends paid by the VCT are tax-free, and growth is free of capital gains tax too.
However, VCTs are more than just a tax planning tool. They’re probably the best way for UK investors to access fast-growing smaller companies. Revenue growth from VCT investees far outstrips what you see in main market listed companies, and the result has been some attractive returns for investors over the longer term.
Exposure to high-growth, smaller companies also has the potential to diversify a conventional portfolio. Long-term performance is often only loosely correlated with the wider economy. Highly disruptive businesses grow by taking market share from incumbents rather than relying on market growth.
The rules governing VCTs mean they’re also an excellent way to back smaller businesses. It’s their role providing support to the next generation of UK start-ups, driving innovation and creating jobs, that earns them the tax relief from the government – and many investors feel that this is something they wish to support too.
Who should consider them?
VCTs are higher risk, and while they’re listed on the stock market, in order to qualify for tax relief investors must hold the shares for at least five years before selling – making them inherently long-term investments. Unlike most conventional funds and shares, the minimum amount you can invest is comparatively high – often £3,000 or more. All of this means they are best suited to wealthier or more sophisticated investors.
VCTs are popular with two groups in particular
The first is higher earners or wealthier investors who are limited in what they can put into more mainstream tax wrappers. Those who already use the full £20,000 ISA allowance or whose pension contributions are tapered due to the amount they earn. The £200,000 a year annual VCT allowance is generous and can save higher earners up to £40,000 in upfront income tax.
The second group is those in, or near, retirement who use VCTs’ tax-free dividends to supplement income from other sources. Because they’re higher risk, VCTs shouldn’t be considered a replacement for a pension, but they can help to top up income from more conventional sources.
Some other tips?
- Seek diversification – VCTs are high risk, so spread your investments over multiple managers. Fortunately there’s lots of choice in the market, from trusts with expertise in particular sectors, like Pembroke VCT, to broad generalist funds like the Albion VCTs.
- Reinvest and recycle – Get an additional 20% initial income tax relief by reinvesting those tax-free dividends. You can also recycle the proceeds from selling the shares, once they’ve been held for five years, into a new VCT.
- Be aware of discounts – VCT shares trade on the stock market, but often at a discount to the underlying value of the fund’s investments. That shouldn’t be a problem for long-term investors, who will receive the majority of their return through tax-free dividends as well as underlying growth. However, it’s something to be aware of and is another reason these should be treated as long-term investments.
- Capacity limits – If you see something you like, it can pay to act quickly. VCTs have limited capacity each year, and popular offers can quickly reach capacity and close to new investors. Some VCT managers also offer lower fees to investors who invest soon after an offer opens.