The Scale-Up Shift: Budget 2025 Reforms EIS, VCTs, and EMI

The Chancellor's Budget 2025 delivered a clear message: the UK tax system is being reshaped to aggressively back high-growth scale-up businesses and the talent they need to thrive.

While headlines focused on energy bills, public services and inflation, some of the most significant long-term changes quietly emerged in the sphere of venture capital, growth finance and employee incentives. The key takeaway? The government wants to support companies not just at seed stage, but throughout their journey towards meaningful scale.

1. Enterprise Investment Scheme (EIS) & Venture Capital Trusts (VCTs)

EIS and VCTs remain central pillars of early-stage and scale-up funding in the UK. Their continuation until at least April 2035 provides much-needed certainty in an environment where tax policy often shifts year to year.

These schemes remain essential tools for funding early-stage growth, offering generous reliefs like 30% Income Tax relief (for both) and Capital Gains Tax (CGT) exemption. The Budget introduces reforms aimed squarely at widening their reach and supporting companies beyond the traditional start-up phase.

The key reforms focus on expanding capacity to support scaling businesses:

• Annual EIS fundraising limit doubled: The maximum amount a company can raise under EIS in a single year will increase from £5 million to £10 million, or £20 million for Knowledge Intensive Companies (KICs).
• Lifetime EIS fundraising limit increased: Over a company’s lifetime, the total it can raise through EIS will rise to £24 million, or £40 million for KICs.
• Company size thresholds increased: The size limits for qualifying companies are also increasing. The gross assets cap will move to £30 million before the investment and £35 million after the investment.

These changes represent the most substantial widening of EIS in years, reflecting the government’s intention to keep the scheme relevant for companies as they move into more advanced funding stages.

The VCT Incentive Rebalance

Alongside EIS reforms, the government introduced a notable shift for VCTs:

• Income tax relief for VCT investors will reduce from 30 % to 20 % from April 2026. The intention is to bring VCTs and EIS into closer alignment by encouraging funds to focus more on the long-term potential and growth impact of the companies they invest in, rather than relying heavily on upfront tax benefits.

Importantly, VCTs continue to offer:

• tax-free dividends
• CGT-free capital growth

These remain powerful incentives for investors who value tax-efficient income streams.

2. Enterprise Management Incentives (EMI)

EMI continues to be the UK’s flagship equity incentive scheme for high-growth companies. For years, rapidly scaling businesses have struggled with the scheme’s eligibility limits, often finding themselves forced out of EMI just at the point when attracting and retaining talent becomes most critical.

EMI is the UK's premier tax-advantaged employee share scheme, allowing staff to acquire options and benefit from Business Asset Disposal Relief (BADR) rates on eventual sale. For fast-growing businesses, hitting the eligibility limits was a common headache. The Budget addressed this directly, injecting much-needed headroom:

• Employee limit doubled: Companies will be able to have up to 500 employees participating (up from 250).
• Gross assets test quadrupled: The qualifying company assets limit rises to £120 million, up from £30 million.
• Individual option limit increased: A single employee can now hold options worth up to £6 million, up from £3 million.

These generous increases send a clear signal: the government wants to empower later-stage growth companies to use EMI, ensuring they can attract and retain the talent needed to scale globally, and keep ownership strategies coherent.

A New Tool for Early Exits: PISCES

The government is also facilitating access to the new Private Intermittent Securities and Capital Exchange System (PISCES) trading venue for EMI option holders. Employees can now amend existing EMI contracts to exercise their options at a PISCES trading event while retaining their tax advantages. This is a crucial step for providing employees with liquidity before a full company sale, an important evolution in the UK’s private markets infrastructure.

Implications for Companies and Investors

For Companies: more stability, more room to grow.

• Greater fundraising flexibility: Companies can now complete larger EIS-qualifying rounds, making the UK’s venture landscape more competitive for later-stage capital.
• Improved talent retention: The expanded EMI thresholds allow scaling companies to continue offering tax-advantaged equity to their entire team, not just early hires.
• Smoother pathway from start-up to scale-up: The reforms prevent the common “cliff edge” where successful businesses suddenly lose access to EIS or EMI just as they mature.

For Investors: valuable reliefs in a changing tax environment.

• EIS and VCTs remain highly attractive despite the VCT adjustment: With CGT rates rising and the BADR rate for founders set to increase to 18% by 2026, the ability to achieve 0% CGT on qualifying EIS and VCT shares becomes more valuable.
• IHT planning is still relevant: EIS shares generally qualify for Business Property Relief, and the Budget’s decision to fix the 100% relief allowance at £1 million until 2031 gives investors reason to revisit estate planning alongside growth investing.
• A new balance between EIS and VCTs: Some investors may naturally tilt towards EIS for its higher upfront relief and CGT advantages, while VCTs may become more appealing for those seeking long-term, tax-efficient dividend income.
  
  

Looking Ahead

The government has also launched a Call for Evidence on tax support for entrepreneurs, signalling that these measures form part of a wider reform agenda. Budget 2025 is not a one-off tweak but the start of a broader shift aimed at modernising the UK’s scale-up ecosystem and keeping the country competitive in attracting innovation and investment.

The message is clear: the UK wants to be the best place in Europe to start, scale and stay.