How are unit trusts taxed in the UK?
Answered 11 March 2026
Here is a comprehensive answer on how unit trusts are taxed in the UK.
Taxation of Unit Trusts in the UK
It is important to distinguish between authorised unit trusts (AUTs) and unauthorised unit trusts (UUTs), as they are taxed differently. In both cases, the starting point is that the unit trust scheme is treated as a company for tax purposes.
What the law says
The "Company Fiction" — Treatment of Unit Trusts as Companies
For capital gains purposes, TCGA 1992 s.99(1) provides that the Act applies to any unit trust scheme as if:
- the scheme were a company,
- the rights of the unit holders were shares in the company, and
- in the case of an authorised unit trust, the company were resident in the United Kingdom.
Importantly, nothing in s.99 brings a unit trust scheme within the charge to corporation tax on chargeable gains.
For income tax purposes, CTA 2010 s.617(1) similarly provides that in respect of income arising to the trustees of an authorised unit trust, the Tax Acts have effect as if the trustees were a UK resident company and the rights of unit holders were shares in that company.
Capital Gains — Authorised Unit Trusts: Exemption at Fund Level
Under TCGA 1992 s.100(1), gains accruing to an authorised unit trust are not chargeable gains — i.e., the fund itself is exempt from CGT on its investments.
Capital Gains — Unauthorised Unit Trusts
An unauthorised unit trust is also treated as if it were a company under TCGA 1992 s.99(1), but it does not benefit from the s.100(1) exemption. The capital gains of an unauthorised unit trust are therefore assessable to Capital Gains Tax on the trustees.
An exception applies for exempt unauthorised unit trusts (EUUTs): capital gains made by an EUUT are not chargeable gains under TCGA 1992 s.100(2).
Income — Distributions to Unit Holders
Under ITTOIA 2005 s.389, where the distribution accounts of an authorised unit trust show amounts available for distribution as dividends, those dividends are treated as paid to unit holders in proportion to their rights, and are treated as paid on shares in the company referred to in CTA 2010 s.617(1).
The Treasury has broad powers under F(No.2)A 2005 s.17(3) to make regulations about the treatment of authorised investment funds (which include AUTs) for tax purposes, including modifying enactments in their application to unit holders and transactions involving such funds.
Umbrella Schemes
Under TCGA 1992 s.99A, where an authorised unit trust is an umbrella scheme (with separate sub-funds), each sub-fund is treated as a separate authorised unit trust, and the umbrella scheme as a whole is not treated as an authorised unit trust.
HMRC Guidance / Practice
General Treatment
For tax purposes, UK unit trusts are treated as companies, with units treated as shares. This applies to both authorised and unauthorised unit trusts.
Income Distributions to Individual Investors
An individual's income from an AUT will be paid as either interest or dividend — not both from the same trust. The tax voucher at year end will confirm which type of income has been paid:
- Interest income from an AUT is entered as Bank/Building Society Interest (or Untaxed Interest after April 2016).
- Dividend income from an AUT is entered as UK Dividend.
An individual may hold more than one AUT, but each AUT pays out only one type of income.
The broad policy intention is that investors in authorised investment funds (including AUTs) should be in broadly the same tax position as if they had invested directly in the underlying assets.
Unauthorised Unit Trusts — Detail
UUTs may be used to invest in property (where lack of liquidity prevents authorisation) or where the class of unit holders is restricted. In practice, units in UUTs are held mainly by organisations such as pension funds and local authorities that are themselves exempt from CGT.
An EUUT's units must be held throughout the year of assessment by 'eligible investors' — persons wholly exempt (other than by reason of residence) from CGT or corporation tax on chargeable gains, or (for insurance companies) ignoring any corporation tax on income. Examples include pension funds and life companies writing only unit-linked pension business.
Capital Gains — Unit Holders
The distinction between authorised and unauthorised unit trusts is not usually relevant to the CGT treatment of unit holders themselves. The rules apply equally to holders of units in both types of trust.
For CGT purposes, TCGA 1992 applies to an AUT as if the scheme were a UK-resident company and unit holders were shareholders. If a unit holder in an umbrella scheme switches between sub-funds, this constitutes a disposal for CGT purposes (disposing of an interest in one company and acquiring an interest in another).
Bond Funds
Where an AUT fails to satisfy the qualifying investments test (i.e., interest-related securities, instruments and derivatives exceed 60% of total assets at any time), it is treated as a bond fund and excluded from the normal AUT regime. Such holdings are instead subject to tax as loan relationships.
Trust Registration
AUTs are not required to register on the Trust Registration Service (TRS) as registrable express trusts, but may have to register for taxable purposes if they have a UK tax liability. UUTs have no specific exclusion and should register if they meet the general registration requirements.
Citation sources
Part 3 Income tax, corporation tax and capital gains tax Chapter 8 Chargeable gains Authorised unit trusts: treatment of umbrella schemes 118 1 The Taxation of Chargeable Gains Act 1992 is amended as follows. 2 In section 99(2) (application of Act to unit trust schemes: definitions)— a in the opening words, after “Subject to subsection (3)” insert “ and section 99A ” ; and b for paragraph (b) substitute— aa “ unit holder ” means a person entitled to a share of the investments subject to the trus
The instructions at CG41330 deal with the difference between authorised and unauthorised unit trusts. This distinction is not usually relevant to the Capital Gains Tax treatment of unit holders. Unless otherwise indicated these instructions apply equally to the holders of units in authorised and unauthorised unit trusts. In practice units in unauthorised unit trusts are held mainly by organisations such as pension funds and local authorities who are themselves exempt from Capital Gains Tax.
Capital gains made by an exempt unauthorised unit trust are not chargeable gains,TCGA92/S100 (2).
An authorised umbrella scheme is a unit trust scheme authorised by the Financial Services Authority which pools its assets into separate parts - commonly known as sub-funds. The rules of such a scheme permit its unit holders to ex-change their rights in one sub-fund for rights in another. For Capital Gains Tax purposes, each sub-fund is treated as an authorised unit trust in its own right and the umbrella scheme itself is treated as not being an authorised unit trust. TCGA 1992 applies (by virtu
Part 2 Income tax, corporation tax and capital gains tax Chapter 3 Authorised investment funds etc Authorised unit trusts and open-ended investment companies 17 1 The following provisions shall cease to have effect— a sections 468H to 468Q of ICTA (authorised unit trusts), b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d section 373(4) and (6) of ITTOIA 2005 (open-ended investment company: interest distributions
Part III Individuals, partnerships, trusts and collective investment schemes etc Chapter III Collective investment schemes and investment trusts etc Application of Act to unit trust schemes. 99 1 This Act shall apply in relation to any unit trust scheme as if— a the scheme were a company, b the rights of the unit holders were shares in the company, and c in the case of an authorised unit trust, the company were resident ... in the United Kingdom, except that nothing in this section shall be take
Authorised Unit Trusts can be paid as taxed interest or dividend income. An individual’s income from an Authorised Unit Trust will either be paid as all interest or all dividend. An individual cannot receive both interest and dividend income from the same Authorised Unit Trust. Note: An individual can have more than one Authorised Unit Trust, however each Authorised Unit Trust may pay out either taxed interest or taxed dividend. The tax voucher at the tax year end will make it clear whether the
Part 4 Savings and investment income Chapter 3 Dividends etc. from UK resident companies and tax treated as paid in respect of certain distributions Amounts treated as dividends Authorised unit trust dividend distributions 389 1 This section applies if the distribution accounts of an authorised unit trust show the total amount available for distribution to unit holders as available for distribution as dividends. 2 Subsection (1) is subject to subsection (6). 3 For income tax purposes dividends a
Part III Individuals, partnerships, trusts and collective investment schemes etc Chapter III Collective investment schemes and investment trusts etc Exemption for authorised unit trusts etc. 100 1 Gains accruing to an authorised unit trust, an investment trust a venture capital trust or a court investment fund shall not be chargeable gains. 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2B . . . . . . . . . . .
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