Glossary · UK

What is Income Units?

A class of fund units that pay out any dividends or interest earned to the investor as cash, rather than reinvesting it.

Full Definition

Income units (sometimes labelled 'inc' or 'dist' units) are a share class within a unit trust or open-ended investment company (OEIC) that distributes the income generated by the fund's underlying holdings -- such as dividends or bond interest -- directly to you as cash, usually monthly, quarterly or annually. This contrasts with accumulation units, which automatically reinvest that income back into the fund to buy more units. Income units suit investors who want a regular cash flow, for example retirees drawing on a portfolio, whereas accumulation units favour long-term growth through compounding. The income is taxable whether you spend it or not: dividend income uses the GBP 500 dividend allowance and rates of 10.75%, 35.75% or 39.35% for 2026/27, while interest uses your savings allowances. Holding the units within an ISA (GBP 20,000 allowance) or pension shelters that income from tax. The choice between income and accumulation units affects both your cash flow and how you track gains for capital gains tax.