Glossary · UK
What is Equalisation (Fund Distributions)?
Equalisation is the capital element of a fund's first distribution to new investors, representing income that accrued before they bought in, so it isn't taxable.
Full Definition
When you buy units or shares in a pooled fund (such as an OEIC or unit trust) part-way through its distribution period, the price you pay already includes income the fund has accumulated since the last payout. To avoid existing holders being diluted, the fund splits your first distribution into two parts: a genuine income element and an equalisation element. The income element is taxable in the normal way, while equalisation is treated as a return of part of your original capital, so it is not subject to Income Tax. Instead, equalisation reduces the base cost of your holding for Capital Gains Tax purposes, which can slightly increase any future gain. For 2026/27, dividends carry a £500 allowance with rates of 8.75%/33.75%/39.35%, and the savings allowance is £1,000 (basic) or £500 (higher); these apply only to the true income portion. The CGT annual exempt amount is £3,000. Equalisation matters mainly for funds held outside an ISA or pension; within an ISA (£20,000 limit) or SIPP, distributions are tax-free anyway. Your fund's tax voucher shows the equalisation figure separately. This tax treatment is UK-wide, with no devolved variation in Scotland, Wales or Northern Ireland for savings and investment income.