SAIM6110 - Collective investment schemes: unauthorised unit trusts: equalisation

Equalisation: purpose

Equalisation is a mechanism, which features in many unit trusts. Its purpose is to ensure that the issue of further units or the redemption of existing units does not affect the value of existing units. Further details regarding equalisation can be found in CTM48425 onwards and CG57705.

Returned equalisation

A unit holder who has purchased units during the period between two distribution dates will receive a distribution made up of two amounts

• income which has accrued from the date of purchase, and
• capital which represents the return of the equalisation element.

The effect is that income is distributed to unit holders in proportion to the time of ownership of the units in the distribution period.

Returned equalisation is not part of the distribution for the purposes Part 15 ITA07 and is a capital receipt which, in the unit holder’s hands should be deducted from the cost of the units for taxation of chargeable gains purposes (see CG57705).