Individuals investing in a venture capital trust (VCT) IPO listed on the London Stock Exchange receive a number of conditional tax incentives; the time-related nature of the associated conditions can create a ‘lock-in effect'. By deriving and testing a model of the value of these incentives we examine how they influence investors' pricing and trading decisions. This paper contributes to the ongoing tax capitalisation debate in three ways: first, by calculating the magnitude of the lock-in effect without reference to underlying shareholder records; second, by adopting a time series approach in view of the time-varying magnitude of the potential lock-in effect, and thereby avoiding control issues involved in cross-sectional analysis of the effects of taxation on pricing; and third, by focusing on changes in the bid–ask spread rather than, for example, mid price, so reducing the impact of changes in the market value of the instruments under consideration on the analysis. Our results have direct policy implic...