Glossary · UK
What is Equalisation?
A return of capital on accumulation fund units bought mid-year, preventing the new investor from being overtaxed on income already accrued.
Full Definition
Equalisation is the accounting mechanism used by UK accumulation and income funds (unit trusts, OEICs) when a unit is purchased between distribution dates. When you buy into a fund mid-period, part of the unit price represents income accrued before you arrived. Without equalisation, you would pay Income Tax on that portion even though it was effectively a return of your own capital. The fund returns the equalisation amount as a capital repayment, reducing your acquisition cost for Capital Gains Tax purposes instead of being treated as income. For income units the equalisation element appears on the tax voucher and is not subject to income tax; for accumulation units it reduces the adjusted cost base of the holding. Investors who reinvest dividends automatically — drip-feed investors — see equalisation on each regular purchase.