The government rules over which businesses qualify for a VCT are prescriptive which can lead to a relatively narrow opportunity set, unlike a pension where most schemes are invested in large, publicly traded securities.
The businesses are typically younger than seven years, have less than 250 employees and £15m of assets, and they are usually unquoted.
Alongside this, a range of businesses — such as property development, legal services, financial activities and banking — are specifically excluded from being held in VCTs.
Mr Hollands added: “VCTs are part of the answer to those who find they have limited scope for further pension investment, but should not be considered as a straight replacement.
“Maximising core allowances such as ISAs and pensions should take priority before investing in VCTs and any investment in the later should only represent a modest proportion of an overall investment portfolio comprised mainly of liquid investments.”
Alex Davies, founder and chief executive of Wealth Club, said: “It is all about balance and no one is suggesting for clients to invest all their money in VCTs — a 5 to 10 per cent would typically be the maximum.
“[VCTs] are “more risky” but for the right person who understands the risk, they are one of the last relatively simple tax efficient investments left.”
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