How venture capital trusts can provide income and growth for pension savers

Venture-capital trusts provide both capital gains and juicy dividends, which makes them the investment vehicle of choice for many pension savers. But they are risky, says David Prosser, so do your homework.

Seedling being watered
Early-stage businesses can bloom without triggering tax bills
(Image credit: © Getty Images)

Small, early-stage businesses don’t generate income, right? Well, that might be true as a rule; paying dividends to shareholders is not a priority for most companies as they develop. But venture-capital trusts (VCTs), which invest in such companies, offer some remarkably generous yields. And that makes them the investment vehicle of choice for many pension savers.

VCTs paid out £556m in dividends over the year to the end of March, almost two-thirds more than in the previous 12-month period. This bumper distribution is all the more welcome as there is no income tax to pay on VCTs’ dividends.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.