In the past 10 years the VCT and EIS markets have doubled in size as awareness of them has grown and the amount investors can save into pensions has been squeezed.

Both schemes were designed with the intention of directing private risk capital into small UK businesses and helping the British economy grow, so might be considered patriotic investments.

Both offer attractive tax benefits and low correlation to mainstream, large-cap markets (like the FTSE 100), so can be attractive to investors who are looking to reduce tax bills, build diversification into their portfolios and are comfortable with the risks involved.

VCTs and EISs are particularly useful for higher-rate taxpayers looking to reduce their income tax bill. They can help investors who want to save for retirement tax efficiently but have used all their pension contribution allowances or who may be close to breaching their pensions lifetime allowance.

Despite these similarities, they each have some distinct features that may make one more suited than the other for individual investors.

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