UK Budget 2025: ‘incentives’ for entrepreneurs and growth businesses under review

The government’s call for evidence on tax support for entrepreneurs (25-page / 215KB PDF) was opened on Wednesday and coincided with the announcement of a package of measures designed to support start-up and scale-up companies in UK chancellor Rachel Reeves’ budget (150-page / 4MB PDF).

In particular, the government announced plans to expand the Enterprise Management Incentive (EMI) regime and double investment limits under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) scheme.

Read more of our UK Budget 2025 coverage

• Delivery, growth and the ‘Valley of Death’: Why budget offers chance to strengthen infrastructure’s future
• UK Budget 2025: changes afoot for electric vehicles taxes
• UK Budget 2025: government reconfirms defence spending increase
• UK Budget 2025: EMI reforms potentially ‘game changing’
• UK Budget 2025: minimum wage increase will add ‘complexity’ to payrolls
• UK Budget 2025: landfill tax rates will not ‘converge’
• UK Budget 2025: limitations on pensions salary sacrifice will lead to ‘cut-backs’
• UK Budget 2025: Business rate rises could increase pressure on high street

Tax expert Peter Morley of Pinsent Masons said: "The changes announced today to increase the limits on EIS and VCT reliefs are very welcome. However, this does not address the complexity of these reliefs which means they are inaccessible to many businesses at an early stage.”

“It is important that there are guardrails around investment reliefs to ensure that the impact is targeted. The current regimes are full of traps for the unwary which can result in a lack of certainty about the availability of reliefs and a risk of clawback in some cases. A wider review would be welcomed,” he said.

EIS tax relief is open to investors in certain companies, where both the investor and company meet certain criteria. VCTs are a particular kind of listed company run by fund managers that offer investors that take out shares in VCTs income tax and capital gains tax benefits. Changes to the EIS and VCT scheme will take effect from 6 April 2026.

The government’s reforms will expand eligibility for both schemes by increasing the ‘gross assets’ threshold above which companies become ineligible – to £30m, from the current £15m limit, in respect of companies about to issue shares, and to £35m, from the current £16m limit, in respect of companies that have just issued shares.

Both the annual and lifetime investment limits that apply under the EIS and VCT schemes will also double. The annual limit will increase to £10m, from the current £5m, with the separate limit provided to so-called ‘knowledge-intensive companies’ (KICs) to rise to £20m, from £10m. The company’s lifetime investment limit will increase to £24m, from £12m, or from £20m to £40m in the case of KICs.

The amount that investors in VCTs will be able to claim in income tax relief will, however, be cut from 30% to 20%.

In her budget speech, Reeves said the government wants “to make Britain the best place in the world to start up, to scale up, and to stay” – and said it will consider further tax changes to incentivise those outcomes.

The Treasury’s call for evidence provides some further context for this. It appears to be considering options that range from recalibrating existing schemes, so that they are better balanced to help companies avoid a “cliff edge” when their growth pushes them beyond existing thresholds for eligibility for support, to the introduction of new incentives to encourage entrepreneurs to reinvest gains to help other companies following on behind them access capital. It said there are examples of this working well in the US.

The government said: “The UK does not lack capital; it faces a capital allocation challenge. Cliff edges in tax support can constrain ambition, and gaps in the system risk stifling growth just when firms are poised to scale. We want to ensure our tax policies are not just generous, but effective – targeting support where it delivers the greatest impact, and encouraging a healthy cycle of reinvestment from successful entrepreneurs into the next generation of start-ups.”

Morley said: “The review should consider the life cycle of a business. Using the tax system to stimulate investment and growth is common around the world. The government has recognised beyond these reliefs the UK systems lacks measures to stimulate investment beyond the start-up stage, leading growth business to look outside the UK. Access to finance beyond the initial growth stage is a challenge and it is welcomed that government is consulting on ways to help business. The UK system also does not encourage successful entrepreneurs to reinvest into new ventures where they could use not only their resources but their intellectual capital and experience to help entrepreneurs. Other jurisdictions are better at developing these ecosystems. A form of reinvestment relief or deferral of tax may encourage this activity."