How do VCTs and EIS compare for retirement planning?

Differing benefits for pensioners

Amid concern Chancellor George Osborne plans to announce further changes to the pensions tax relief system in the Budget next month, managers reveal how holding VCTs and EIS within retirement portfolios could prove beneficial.

Philip Cook, private client partner, Thomas Miller Investment Complement pensions VCTs provide tax-free dividends, which makes them attractive for higher-rate tax payers seeking income in retirement who are willing to lock their money away. Capital at risk is reduced by an income tax deduction of 30% on the amount invested, assuming shares are retained for five years. Therefore, this can make VCTs a good complement to pension income in retirement. Meanwhile, dividends paid to EIS investors are taxable, so returns are generally distributed as capital that is tax free. This profile mak...