04: Tax

The capital gains that are realised within a unit trust, OEIC or investment company are not liable to tax. It is only when the unit-holder or shareholder disposes of their investment that capital gains tax may become payable.

Dividends from UK companies that are received by a unit trust, OEIC or UK authorised investment trust are not taxable. Other income is subject to 20% corporation tax in the case of unit trusts and OEICs, and 28% corporation tax in the case of UK investment trusts/companies.

Dividends paid to the investor by a unit trust, OEIC or UK authorised investment trust are paid net of 10% tax and interest distributions are paid net of 20% tax. Additional tax is due from higher rate taxpayers.

A growing number of investment companies are based offshore, which reduces the company’s tax liability. As a result of changes intrdouced by the Budget 2008, investors in these funds are deemed to receive a 10% tax credit on their distributions, making the tax treatment very attractive for funds holding fixed interest securities.  Capital gains are taxed inthe same way as UK investment trusts.