Financial Services > Investments > Unit Trusts


A Unit Trust is one of a range of investments known as 'collective investments' and it is a peculiarly British concept. On the continent of Europe the same outcome is achieved by using one of three alternatives which are Open Ended Investment Companies (OEICs), Societe d'Investissement A Capital Variable (SICAVs) or Investment Company with Variable Capital (ICVCs). There is no practical difference between these investment vehicles.  

This type of contract allows likeminded investors to pool their money and invest in a range of individual stocks, shares, gilts and/or bonds.

..............................................................................................................

The benefits to you from using a Unit Trust or any of the collective investments are:



  1. The cost of investing, managing and selling are much lower for large scale investments than they are for individuals.
  2. There is a full time team of professional managers to monitor the individual stocks, shares, gilts and bonds within the unit trust who will make decisions about when to sell existing investments and the most suitable new investments to be included in the scheme.
  3. Your investments are spread across a bigger range of stocks, shares, gilts or bonds than you could acquire individually and this reduces the risk that you face.

For your safety, all investments owned by the Unit Trust are registered in the name of an independent Trustee and not the Unit Trust manager.

There are restrictions upon the proportion of the entire Trust that can be invested into any single business or group of businesses, and the Unit Trust manager has to publish the aims of the Unit Trust and stick to them.

This means that the investment you get is the same one that it says on the tin!

..............................................................................................................

The Unit Trust fund pays no Income Tax, Corporation Tax or Capital Gains Tax on money that it receives or growth that it achieves - so you will be responsible for any tax that becomes due.

If you decide to take a regular income from your Unit Trust, that income will be provided from dividends received by the Unit Trust manager. All dividends have suffered Corporation Tax and so come to individuals with a 10% income tax credit and exemption from any more Income Tax at the basic rate. When you become a higher rate Income Tax payer you have an extra Income Tax to pay calculated on the net dividend you receive.

You must inform your accountant or Her Majesty's Revenue & Customs about the income that you take from your Unit Trust and produce the tax voucher sent with each payment by the Unit Trust manager.

..............................................................................................................

When you withdraw a lump sum from your Unit Trust, move money from one fund into another or close the investment entirely, the gain that you have made will be subject to Capital Gains Tax and not Income Tax.

This is an important distinction because every UK taxpayer is allowed to make gains of £11,300 in the 2017/2018 tax year before any Capital Gains Tax is payable, making the system of Capital Gains Tax quite reasonable.

..............................................................................................................

The value of your investment can be followed every day in the newspapers because the Unit Trust will be listed in the Financial Times.

All of the money that you invest will buy a number of units (not always whole numbers) and the valuation method is very simple. Every day the Unit Trust manager must work out the market value of all of the assets within the Unit Trust, deduct from that the cost of selling them all and closing the scheme and then divide that figure by the total number of units in circulation. The figure produced by this calculation is the Unit Trust price and that is the figure quoted in the stock market and newspaper.

Because there are costs involved in both buying and selling these units, you may see two prices quoted. Whilst the majority of funds are now 'single priced' with explicit charges some of the longer established funds still operate on a traditional bid price and offer price. It will not surprise you to learn that you buy the units at the higher price and sellers get the lower price.