You need to install the Xcode 16 beta. It has the required updated components to allow the installation. Before installing Xcode 16, I got the same error trying to install Sequoia using UTM. After installing Xcode 16, UTM was able to install Sequoia.

Someone using Virtual Buddy discovered a way to enable updating a Sonoma VM to a later beta release. I tested it myself and it works although you may have to refresh the Software Update panel a few times before it sees the later beta. Apparently, it's a one shot deal. To update to a subsequent beta, you have to run the script again. Here's a link to the script.