What is the difference between an OEIC and a unit trust?

Full answer

OEICs and unit trusts are two legal structures for the same idea: a pooled, open-ended fund where your money is combined with other investors' and managed across a portfolio of assets. Both expand and contract as investors buy in or sell out, so there is no fixed number of units or shares. For investors, the practical differences are largely historical. A unit trust is legally a trust, run by a fund manager with a separate trustee safeguarding the assets; it traditionally has two prices - a higher offer price to buy and a lower bid price to sell, with the gap called the bid/offer spread. An OEIC (open-ended investment company) is structured as a company that issues shares and is overseen by an authorised corporate director and a depositary; it typically uses a single price for buying and selling, which many investors find clearer. OEICs can also hold multiple sub-funds under one umbrella. Most UK fund houses have converted unit trusts to OEICs, so OEICs now dominate. Critically, the tax treatment is the same for both. Outside a tax wrapper, income distributions are taxed as either dividends or interest depending on the fund's holdings. For 2026/27, the Dividend Allowance is GBP 500, with dividend rates of 10.75%, 35.75% and 39.35%. Gains when you sell are subject to Capital Gains Tax: the Annual Exempt Amount is GBP 3,000, with CGT charged at 18% within the basic-rate band and 24% above it. Holding either fund inside a Stocks and Shares ISA (GBP 20,000 annual allowance) or a pension shelters both income and gains from tax. When choosing, ignore the OEIC-versus-unit-trust label and focus on the fund's strategy, ongoing charges and performance. Use the dividend tax and capital gains tax calculators to estimate the tax on distributions and disposals held outside a wrapper.

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