What is the difference between accumulation and income units?

Many funds come in an accumulation class and an income class. Both hold exactly the same investments; what differs is what happens to the dividends and interest the fund receives. Each class has its own ISIN and its own price.

HMRC describes the two for UK authorised funds: income units, where the income is allocated to unit holders periodically, and accumulation units, where it is not paid out but is added to the capital of the fund.

The labels vary between providers: “Acc” and “Inc”, or “Accumulating” and “Distributing” (“Dist”), the pair many ETFs use. Vanguard’s FTSE All-World ETF, for example, trades in London as VWRL, which pays its income out every quarter, and as VWRP, which accumulates it; Fundology shows both with an ongoing charge of 0.14% a year, from Vanguard on 10/10/2026.

An accumulation unit’s price includes the income reinvested, so its price history is close to a total return. An income unit pays the income out, so its price history alone understates what a holder received: the payments have to be added back to see the full return.

This is why comparing the price of an accumulating class with the price of a distributing one flatters the first. On Fundology, a return worked out from a distributing fund’s price is labelled “price only”; where a total return with income reinvested is reported for the fund, that is shown instead.

Inside a stocks and shares ISA there is no UK tax on the income or gains, so the class changes only whether income arrives as cash.

Outside an ISA or pension, HMRC taxes the income reinvested in accumulation units “in the same way as if they had been distributed”. Its Capital Gains Tax helpsheet calls this a notional distribution. Tax is due on it although no cash reaches you.

Whether that income counts as dividends or as interest depends on the fund. A UK authorised fund can pay interest distributions only if, throughout the distribution period, more than 60% of its investments by market value are interest-bearing or similar; otherwise its income is paid as dividend distributions. The same applies to accumulation and income units of the fund.

Because reinvested income has already been taxed as income, HMRC allows it as additional expenditure on accumulation units when a gain is worked out, as its helpsheet HS284 sets out. The effect is that the same income is not taxed a second time as part of the gain.

Gains above the £3,000 annual exempt amount are taxed at 18% where they fall within the basic rate band and 24% above it.

Part of the price of new units pays for income the fund has already built up in the current distribution period. At the end of that first period, that amount comes back to the buyer as an equalisation payment.

HMRC says an equalisation payment is not income: it is a return of part of the price paid. It is therefore deducted from the cost of the units when the gain on a later sale is worked out.

Most ETFs listed in London are based in Ireland or Luxembourg, which makes them offshore funds for UK tax. An offshore fund with UK reporting fund status reports its income for each period, and income it kept rather than paid out, called excess reportable income, is treated as distributed to UK investors six months after the end of the period. For an accumulating fund that pays nothing out, that covers all of its reported income. The amount is taxed as income and added to the cost of the holding for Capital Gains Tax.

The class does not change what the fund owns, how it is managed or how much it can fall. It changes where the income goes, what the price history shows and the records needed for tax outside an ISA.

Some platforms can reinvest the cash from income units into the same fund; the FCA lists dividend reinvestment among the charges a platform can make (2018), so the platform’s list of charges shows whether it costs anything. Whether income now or reinvested income suits someone depends on their circumstances; MoneyHelper offers free, impartial guidance. Capital at risk. Past performance is not a guide to future returns. The value of investments can fall as well as rise.