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  • Unit vs Investment Trust

Factfile: Unit TrustUnit 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
  • 20% income tax deducted at source (none shares/dividend income) - can be reclaimed by non tax payers
  • 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 (40%)  subject to 22.5% on 'shares' unit trust income and 20% on non-shares unit trust income
  • Additional rate rate (45% - after April 2013) subject to 27.5% on 'shares' unit trust income and 25% on non-shares unit trust income
  • Additional rate rate (50% - before April 2013) subject to 32.5% on 'shares' unit trust income and 30% on non-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: Yes

Suitable for:Unit Trust

  • Children
  • Adults
  • Business
  • Trusts
  • Charities
  • Pension Fud 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 Unit Trusts allows you to invest in a great deal of shares with other people wishing to do the same. Each person's investment buys them a certain amount of units within the fund and there is generally a charge (known as an initial charge) to cover the setting up of your holding.  There is also usually a management charge for the ongoing management of your investment.  Units can be created or cancelled according to demand.  This is why they are called 'open ended' investments because there is no set number of units.  It is usual for units to be valued in line with the underlying investments held by the fund. This means that the value of your holding could rise or fall on a daily basis.

Unit Trusts offer a wide spread of different markets and types of investment. Whether you require income, growth or both income and growth there will be a Unit 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 general funds or funds concentrated in a particular area, such as investment in the UK, Europe or areas such as smaller company funds and technology funds. There are certain rules that have to be followed by the Unit Trust manager to make sure that the investments held are sufficiently spread.  For example, the maximum of the Trust's assets that can be invested in one company is 10% and it can only hold four of these. The rest of the holdings in individual companies must not exceed 5%. This means that the minimum amount of companies a Unit Trust can invest in is sixteen. Most Unit Trusts hold investments in fifty to one hundred companies.

Income Taxes:

Income Tax and Dividend IncomeBook Now and Speak to an Adviser

Dividend income received into a Unit Trust is taxed at 20%.  Any dividends paid by the Unit Trust come with a tax credit of 10%.  Capital gains within a Unit Trust are not taxed.

For example, if you receive a dividend from your unit 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
  • If you are a additional (45%) rate taxpayer you will need to pay a further 27.5% through your tax assessment

Income Tax and 'Other' None Shares Based Income

Other income paid into a Unit Trust is usually taxed as savings with 20% deducted.

  • If you are a non taxpayer you can reclaim the 20% 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 20% through your tax assessment
  • If you are an additional (45%) rate taxpayer you will need to pay a further 25% through your tax assessment

Capital Gains Tax CGT

Depending on the amount of profit you make when you sell Unit 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 about your tax position.

 

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