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  • Unit vs Investment Trust

Factfile: Investment TrustInvestment Trust

Lump sum investments: Yes

Regular premiums allowed: Yes

Flexible payments allowed (stop/start/additional/increase/decrease): Yes

Investment Risk Profiles Available:

Changing funds and risk profile allowed: Yes

Moving to another company allowed: Yes

Life Insurance Included: No

Personal Tax Benefits:

  • Capital gains tax free only up to yearly allowance
  • 10% dividend tax credit cannot be reclaimed by a non tax payer
  • Basic rate tax payer has no further liability to income taxes
  • High rate tax payer subject to 22.5% on 'shares' unit trust income
  • Can package inside an ISA to make capital gains tax free although tax credit can still not be reclaimed

Can be held inside Trust: YesInvestment Trust CGT

Suitable for:

  • Children
  • Adults
  • Business
  • Trusts
  • Charities
  • Pension Fund Investment
  • Non Tax Payers
  • Basic Rate Tax Payers
  • High Rate Taxpayers

Insolvency Compensation Limits:

  • Investment Company - Maximum compensation for insolvency £48,000. Do not invest more than £50,000 with any one company.

Brief Description:

Investing in Investment Trusts allows you to invest in a great deal of stocks and shares with other people wishing to do the same.  Investment Trusts are public limited companies and issue a fixed number of shares. This is why, unlike Unit Trusts and OEICs, they are classed as 'closed ended'.

It is usual for the Directors of the Investment Trust to contract out the investment management to professionals.  Investment Trust shares are traded on the London Stock Exchange and the price of them depends on supply and demand. If people buy Investment Trust shares which, if added altogether, were valued at less than the assets of the Investment Trust, the share price is termed as 'trading at a discount'. This is because people are buying the assets of the Investment Trust company at a price lower than the market value. Conversely, if people buy Investment Trust shares which, if added altogether, were valued at more than the assets of the Investment trust, the share price is termed as 'trading at a premium'. This is because people are buying the assets of the Investment Trust Company at a higher price than the market value.

An Investment Trust usually makes an annual charge to cover the cost of investment management. Some Investment Trusts also have a performance related fee, if they outperform certain parameters. Annual fees for Investment Trusts tend to be lower than those for Unit Trusts and OEICs. Investment Trusts offer investment in companies with a wide spread of different markets. Whether you require income, growth or both income and growth there will be a Investment Trust to meet your needs. Depending on the level of risk you wish to take with your investment, you will have the opportunity to invest in different categories of Trusts from the UK, Europe or areas such as smaller companies, emerging markets, property and commodity and energy.

Income Taxes:Get Our Investment Secrets

Dividend Income paid by the Investment Trust comes with a tax credit of 10%.

Capital gains within an Investment Trust are not taxed.

For example, if you receive a dividend from your investment trust provider it will be paid net to you. If the dividend was £1 then only 90p would be paid to you. This is because 10% tax has been deducted.

  • If you are a non taxpayer you cannot reclaim the 10% tax paid
  • If you are a basic rate taxpayer there will be no further tax to pay
  • If you are a higher rate taxpayer you will need to pay a further 22.5% through your tax assessment

Capital Gains Tax CGT

Depending on the amount of profit you make when you sell Investment Trusts, you may need to pay Capital Gains Tax.

When calculating your profit you are allowed to deduct the original purchase price, any expenses you incurred when buying or selling and you may be entitled to Taper Relief.  

Request expert advice today.



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