Unit Trusts

Unit trusts offer a number of benefits for investors seeking growth and income over a sustained period of time. Often seen solely as a key component of a stocks and shares isa, unit trusts provide a variety of benefits to investors.

What are Unit Trusts?

A Unit Trust is a tax wrapper used to invest money, available to both individuals and businesses. Unit Trusts provide access to a wider range of investments, typically with the goal of achieving capital growth. This growth aims to put funds to good use that the individual/business owner can then flexibly use to draw a lump sum or regular income from.

For personal investors, Unit Trusts are often cleverly structured to work alongside an ISA. If an investor has maximised their £20,000 ISA allowance, the Unit Trust acts as a ‘waiting room’ for funds. These funds are fully invested and automatically feed into the ISA to maximise your annual allowance when it refreshes in the new tax year. This automation takes one more financial job from your plate.

How do Unit Trusts work?

No matter if for personal or business investing, Unit Trust funds work the same way. Supported by your financial adviser, you’ll discuss your plans to ensure any investment is working towards your future goals. As part of this plan, an investment portfolio will be agreed upon based on your attitude to risk.

Money invested is pooled together with many other investors into the Unit Trust fund. Each investor will buy ‘units’ of the fund, essentially a share of the overall fund. These units ensure that each investor’s share is easily accounted for but with the ability for the fund manager to operate on a wider scale. This secures far greater diversification and investment options than if each investor’s funds were used individually.

The units, and your overall portfolio, will be built and managed by your financial adviser depending on multiple factors, such as your attitude to risk, financial goals, and time frame to reach those goals.

As with many investment pots, Unit Trusts expect to see growth over the medium- to long-term but are at risk of losing capital. Nevertheless, as it is classed as an investment product – like an ISA – investors are covered up to £85,000 by the Financial Conduct Authority.

How do Unit Trusts make money?

Unit Trusts grow as the underlying assets in which they are invested gain value. This may be growth in the value of the asset or income received, such as dividends, or interest from Bonds. Any received income is typically reinvested through accumulation, rather than being distributed to the investor.

For example, if you begin with £10,000 in the Unit Trust which grows by 5%, you won’t receive £500. Instead, that £500 is used to buy more units in the same fund. At the right time for you, you can then sell some or all your units and withdraw a lump sum or access a regular income.

It’s important to note that when you sell these units, you will be assessed for Capital Gains Tax (CGT). For the current tax year, the first £6,000 of gains made through a Unit Trust investment is exempt from CGT. If you make more than £6,000, you’ll need to pay tax on the growth from your Unit Trust.

If you don’t have any other assets which are liable for Capital Gains Tax, such as a second home or other shares you plan to sell, Unit Trusts are a brilliant way of using your £6,000 annual allowance. However, if you’re using your Capital Gains allowance elsewhere, it’s important to understand that any profit made on a Unit Trust fund is going to be liable for CGT. This is one of the disadvantages of Unit Trusts.

To ensure your wealth is growing efficiently, get in touch to arrange a meeting with one of our expert advisers. They will work with you to understand your whole financial picture, checking that you’re using all your allowances in full and making your money work as hard as it can.

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Working alongside your ISA

Alongside offering professionally managed capital growth with flexible access, another great advantage of a Unit Trust for personal investments is that it can be used to feed an ISA. For couples, this can even be a joint Unit Trust feeding individual ISAs.
For example, if you had £120,000 to invest, you would be far beyond your ISA annual allowance. First and foremost, we would maximise your ISA allowance of £20,000 to ensure the most tax-efficient pot is maximised. The remaining £100,000 would then be placed into a Unit Trust for you. From there, we’d ensure that £20,000 each year transfers automatically into your ISA. By using a Unit Trust feeder, not only do you have one lump sum invested, but you’ve also got a product that automates maximising your ISA.

How are Unit Trusts managed?

By working with one of our expert financial advisers, we will actively manage your Unit Trusts. This means regular updates from the expert investment team who buy, hold, and sell the units within your portfolio, aiming to achieve your financial goals. Regular reviews keep you updated to ensure that your investments remain aligned to your goals, and you stay informed on your investment’s progress.

At all times, our financial advisers will provide you with first-class advice and access to a wide range of investment solutions to help you diversify your investment, spread your risk, and achieve your financial goals.

Investing in Unit Trusts

An initial meeting with one of our financial advisers will allow for a full assessment of your personal situation and discussion of your financial goals over varying timescales. The initial meeting will end by putting a clear plan in place for next steps.

The second meeting will include a formal presentation of the recommendation based on your situation and goals. When you are happy, the documents are signed, and the funds are invested.

Your adviser will keep you regularly updated about the performance of your investment with a full review at least once per year to ensure your investment remains best placed as your goals, risk appetite, and circumstances change. If your personal circumstances change, reviewing the account more regularly is advised. You can also download our handy app to keep informed about your investments.

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Investing in Unit Trusts with Cooper Associates

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While we always recommend investing for the long-term, a Unit Trust does enable you to access your capital whenever you need to.

With flexible payments, you can start, stop, or change payments when you need to, and have the flexibility to either pay in lump sums or regular amounts, whichever you prefer.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select which means that the value can go down as well as up. You may get back less than you initially invested. The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on your individual circumstances. Trusts are not regulated by the Financial Conduct Authority.

Frequently Asked Questions about Unit Trusts

  • Is a Unit Trust right for me?

    Is a Unit Trust right for me?

    This will depend on your Capital Gains tax allowance status as well as your financial and investment goals. Speak to a member of our team today to arrange an initial conversation to explore if Unit Trusts are right for you.

  • Why invest in Unit Trusts over other investment options?

    Why invest in Unit Trusts over other investment options?

    There are many advantages of Unit Trusts. They enable you to use tax allowances that other investments won’t, for example. Additionally, they’re very tax efficient and can automate maximising your ISA. Unit Trusts also offer a lot of flexibility around what you can invest in, matching your appetite for risk and your interests.

  • How do I monitor the performance of my Unit Trust Investment and when should I consider selling?

    How do I monitor the performance of my Unit Trust Investment and when should I consider selling?

    We would recommend annual reviews of your account with your Wealth Manager who can help you to understand why your Unit Trusts are performing the way they are. You can also track your funds in your online wealth account or via our app. With Cooper Associates, you stay well informed about how your Trusts are performing, which can in turn help you to understand the best time to sell.

  • How much do I need to invest in a Unit Trust?

    How much do I need to invest in a Unit Trust?

    There is no minimum amount required to invest in a Unit Trust.

Is a Unit Trust right for me?
Why invest in Unit Trusts over other investment options?
How do I monitor the performance of my Unit Trust Investment and when should I consider selling?
How much do I need to invest in a Unit Trust?

Is a Unit Trust right for me?

This will depend on your Capital Gains tax allowance status as well as your financial and investment goals. Speak to a member of our team today to arrange an initial conversation to explore if Unit Trusts are right for you.

Why invest in Unit Trusts over other investment options?

There are many advantages of Unit Trusts. They enable you to use tax allowances that other investments won’t, for example. Additionally, they’re very tax efficient and can automate maximising your ISA. Unit Trusts also offer a lot of flexibility around what you can invest in, matching your appetite for risk and your interests.

How do I monitor the performance of my Unit Trust Investment and when should I consider selling?

We would recommend annual reviews of your account with your Wealth Manager who can help you to understand why your Unit Trusts are performing the way they are. You can also track your funds in your online wealth account or via our app. With Cooper Associates, you stay well informed about how your Trusts are performing, which can in turn help you to understand the best time to sell.

How much do I need to invest in a Unit Trust?

There is no minimum amount required to invest in a Unit Trust.

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