Unit Trust

Published / Last Updated on 17/05/2021


Unit Trust

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 spread sufficiently.  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.

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 capital gains tax allowance (currently £3,000.00)
  • 20.00 % income tax deducted at source (none shares/none dividend income) - can be reclaimed by non tax payers

For Non-Shares Based Unit Trust Income in 2024 Tax Year

  • Basic rate tax payer (20.00 %) has no further liability to income taxes
  • High rate tax payer (40.00 %)  subject to further 20% on non-shares unit trust income
  • Additional rate rate (45.00 %) subject to further 25% on non-shares unit trust income

For Shares Based Unit Trust Dividend Income in 2024 Tax Year

Income can form part of your Tax Free Dividend Allowance £500.00 per year.

For dividend income received above the yearly allowance, it is charged to tax at a rate where the taxable income falls within the usual income tax bands

  • Non Tax Payers - no further tax
  • Dividend in Basic Rate Tax Band (20.00 %) - tax due at 8.75 %
  • Dividend in Higher Rate Tax Band (40.00 %) - tax due at 33.75 %
  • Dividend in Additional Rate Tax Band (45.00 %) - tax due at 39.35 %

Can package inside an ISA to make capital gains tax free and income tax free.

Can be held inside Trust: Yes

Suitable for:

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

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.

Request our expert advice on your tax position.

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