Answers · UK 2025/26
What is the difference between income units and accumulation units in a fund?
Income units (often labelled 'Inc') pay dividends or interest generated by the fund out to you in cash, while accumulation units (labelled 'Acc') automatically reinvest that income back into the fund, increasing the unit price rather than paying cash out. Outside an ISA or pension, both are still taxable as income when it arises, even though accumulation units never actually pay you cash directly.
Full answer
Many funds offer investors a choice between two share or unit classes covering the exact same underlying portfolio of investments: income units (marked 'Inc' in the fund's name) and accumulation units (marked 'Acc'). With income units, any dividends from shares or interest from bonds generated by the fund's underlying holdings are paid out to you directly, either into your platform cash account or your bank account, at regular intervals (commonly quarterly, twice yearly, or annually depending on the fund). With accumulation units, that same income is not paid out at all — instead, it is automatically used to buy more units within the fund on your behalf, meaning the accumulation unit price effectively grows faster than the equivalent income unit price over time to reflect the reinvested income, rather than the unit count increasing the way it would if you manually reinvested cash dividends from income units. For investors who want a regular income stream from their investments (for example, retirees drawing on an investment portfolio), income units are usually more convenient, avoiding the need to sell units periodically to generate cash. For investors who do not need the income right now and want to simply grow their investment as efficiently as possible, accumulation units avoid the friction (and sometimes cost) of receiving small cash dividend payments and having to manually decide how to reinvest each one. Critically, outside an ISA or pension wrapper, the underlying income generated by an accumulation fund is still taxable exactly as if it had been paid out in cash — HMRC treats phantom or notional distributions from accumulation units as taxable dividend or interest income in the tax year they arise, meaning accumulation unit holders must still track and report this income on Self Assessment if it exceeds the relevant tax-free allowances, even though no cash was ever received. Within an ISA or SIPP, this distinction has no tax consequence either way, since all income and gains are tax-free regardless of unit type.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.