Unit Trusts, Investment Trusts & OEICs
About Unit Trusts, Investment Trusts & OEICs
Unit trusts, investment trusts and OEICs are the three main types of investment fund in the UK. Each one pools your money with other investors and spreads it across a portfolio of assets - shares, bonds, property, or a mix - but they're structured differently, priced differently, and suit different objectives.
An OEIC (open ended investment company) and a unit trust are both open-ended funds. The fund manager creates and cancels shares or units as investors come and go, and the price tracks the net asset value of the underlying holdings. An investment trust is a closed-ended fund listed on the London Stock Exchange. It has a fixed number of shares, can borrow to invest, and its share price can trade above or below the value of the assets inside it.
Which structure suits you depends on what you're investing for, how much access you need to your money, and how your portfolio sits alongside your ISA, pension, and wider tax position. All three can be held in a stocks and shares ISA or a SIPP, where gains and income are tax-free.
At Vintage Wealth Management, we advise on unit trusts, OEICs and investment trusts as part of a wider investment strategy. We help you choose between fund types, decide which wrapper to hold them in, and work out how they fit alongside your pension and other investments.
How do unit trusts, OEICs and investment trusts work?
All three are collective investment schemes. You put money in alongside other investors, a fund manager invests it on your behalf, and your returns depend on how the underlying holdings perform. The difference is in how each fund is structured, how it's priced, and what the fund manager can do with the money.
Unit trusts
A unit trust is an open-ended fund set up under trust law. When you invest, the fund manager creates new units. When you withdraw, your units are cancelled. The price of each unit is based on the net asset value of the fund's holdings, and unit trusts are dual-priced, meaning you buy at a slightly higher offer price and sell at a slightly lower bid price.
OEICs
An OEIC (open ended investment company) works in a similar way but is structured as a company rather than a trust. You buy shares rather than units, and most OEICs are single-priced, so the buying and selling price is the same. OEICs were introduced in the UK in 1997 and most new fund launches now use this structure. Many existing unit trusts have converted to OEICs over the years because single pricing is simpler for investors.
Investment trusts
An investment trust is a public limited company listed on the London Stock Exchange. Unlike unit trusts and OEICs, it has a fixed number of shares, which makes it a closed-ended fund. The share price is set by supply and demand, not just the value of the underlying portfolio, so it can trade at a premium or a discount to the net asset value. Investment trusts can also borrow to invest (known as gearing), which amplifies both gains and losses. They have permanent capital, meaning the manager doesn't have to sell holdings when investors sell their shares.
How are unit trusts, OEICs and investment trusts taxed?
All three fund types are taxed in the same way. How much you actually pay depends on what wrapper you hold them in.
Dividends
Capital gains
Using ISAs and SIPPs
Dividends from unit trusts, OEICs and investment trusts are taxed as dividend income. Each individual has a £500 dividend allowance per tax year. Above that, the rates for 2026/27 are 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. Dividends received inside an ISA or SIPP are tax-free.
When you sell units or shares in a fund at a profit, the gain is subject to capital gains tax. The annual exemption for 2026/27 is £3,000 per individual. Above that, you pay 18% if you're a basic rate taxpayer or 24% if you're a higher or additional rate taxpayer. Gains within an ISA or SIPP are completely exempt.
With the annual exemption now at its lowest level in decades, holding funds outside a tax-efficient wrapper can result in a tax bill on even modest gains. We help you work through whether existing holdings should be restructured.
All three fund types can be held inside a stocks and shares ISA or a self-invested personal pension. Inside these wrappers, there’s no tax on dividends, no tax on interest, and no capital gains tax when you sell. The ISA allowance for 2026/27 is £20,000 per individual.
For most investors, sheltering funds inside an ISA or SIPP is the single most effective step they can take to reduce their tax bill. If you already hold unit trusts, OEICs or investment trusts outside a wrapper, we can look at whether it makes sense to sell and repurchase inside an ISA over time.
How do unit trusts, OEICs and investment trusts compare?
Day to day, unit trusts and OEICs are almost the same thing. Most new funds launch as OEICs now, and plenty of older unit trusts have converted. The real choice is between an open-ended fund and an investment trust. Investment trusts can borrow to invest, trade at a discount, hold onto capital when investors sell, and smooth their dividends. Open-ended funds can't do any of that.
That's not always an advantage, though. Borrowing amplifies losses as well as gains, and a discount can widen just when you want to sell. If you're not sure which structure suits what you're trying to do, we can help you work through it.
All three pool your money and invest it on your behalf, but they're structured differently. If you're weighing them up, it helps to see them side by side.
| Unit trust | OEIC | Investment trust | |
|---|---|---|---|
| Legal structure | Trust | Company | Public limited company |
| Open or closed ended | Open ended | Open ended | Closed ended |
| What you buy | Units | Shares | Shares (on the stock exchange) |
| Pricing | Dual priced (bid/offer spread) | Single priced | Market price (may differ from NAV) |
| Can trade at a discount or premium | No | No | Yes |
| Can borrow to invest (gearing) | No | No | Yes |
| Permanent capital | No | No | Yes |
| Can build revenue reserves for dividends | No | No | Yes |
| Can be held in an ISA | Yes | Yes | Yes |
| Can be held in a SIPP | Yes | Yes | Yes |
Why work with Vintage Wealth Management.
Why work with Vintage Wealth Management.
Funds don't exist on their own. They sit alongside your pension, your ISA, and everything else you've already got. We look at all of that before suggesting what to hold, where to hold it, and whether what you've got now still makes sense. Vintage Wealth Management has been advising on investments and tax planning for over a decade. We're named in the FT Adviser UK Top 100 Financial Advisers every year since 2021, and our team includes Chartered Financial Planners and Fellows of the Personal Finance Society.
We've got offices in Central London, North West London, Portsmouth, Buckinghamshire, Swindon, and Dublin, and we work with clients across the UK. Get in touch and we'll take it from there.
Frequently asked questions about unit trusts, OEICs and investment trusts
-
Yes, if you hold them outside an ISA or SIPP. Dividends above your £500 allowance are taxed at 10.75%, 35.75%, or 39.35% depending on your tax band (2026/27 rates). Capital gains above £3,000 are taxed at 18% or 24%. Inside an ISA or SIPP, there's no tax on dividends, interest, or gains.
-
Yes. Both are open-ended funds, so you can sell your units or shares back to the fund manager on any dealing day. The price you receive is based on the net asset value of the fund at that point. There's no fixed lock-in period, although some funds carry an exit charge if you sell within a set time. Investment trust shares are sold on the stock exchange, so you need a willing buyer, but most can be sold on the same day.
-
Both are open-ended funds that pool your money and invest it on your behalf. The main difference is pricing. Unit trusts have two prices, a higher offer price to buy and a lower bid price to sell. OEICs have a single price. Beyond that, they work almost identically. Most new funds launch as OEICs now, and many older unit trusts have converted.
-
They can. The value of any fund depends on what it's invested in, and markets go down as well as up. You could get back less than you put in. That said, funds spread your money across a range of holdings, which reduces the impact of any single investment falling. How much risk you take on depends on the type of fund. A global equity fund will move around more than a short-term bond fund.
-
Both are listed on the stock exchange and both give you access to a portfolio of investments through a single holding. The key difference is that ETFs have a creation and redemption mechanism that keeps the share price close to the net asset value. Investment trusts don't have that mechanism, so their share price can trade at a discount or premium to the NAV. Investment trusts can also borrow to invest and build revenue reserves, which ETFs generally can't.
-
They can be a straightforward way to start investing. You get access to a diversified portfolio without needing to pick individual shares, and you can start with relatively small amounts. The fund manager handles the buying and selling. If you're not sure which fund type or sector is right for you, that's where advice comes in. We help investors at all stages work out what fits.
Disclaimer
The information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor. Your capital is at risk. The value of unit trusts, OEICs, and investment trust shares can fall as well as rise, and you could get back less than you invest. Past performance is not a reliable indicator of future results. Investment trusts can use gearing, which amplifies both gains and losses. The Financial Conduct Authority does not regulate tax planning. The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied, is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.