What Is an Investment Trust? UK Guide

By Tom Ashby, Editor · Updated 10 October 2026

7 min read · Facts checked against official sources on 10 October 2026

In short

An investment trust is a company listed on the stock exchange whose business is investing, so you buy its shares rather than units in a fund.
Its share price can be below the value of what it owns (a discount) or above it (a premium).
Trusts can borrow to invest, which magnifies gains and losses, and can keep back some income for leaner years.
Buying shares usually costs 0.5% stamp duty, and they can be held in ISAs.
The FSCS doesn't cover a trust's performance. It may help only if your platform fails.

Years investment trusts have existed in the UK (FCA): 150+
Average discount to NAV, April 2026 (FCA, citing AIC data): 9.6%
Share of income a trust can usually keep back each year: 15%
Stamp duty when you buy UK trust shares: 0.5%

On this page

How is an investment trust different from a fund?
What are NAV, discounts and premiums?
What is gearing?
How do investment trusts pay dividends?
What does an investment trust cost?
How are investment trusts taxed?
What are the risks?
How do investment trusts compare with REITs and VCTs?
Investment trust, fund or ETF?
Related guides
Sources

An investment trust is a company whose business is investing. It’s listed on the stock exchange, and when you invest you buy its shares, like any other company. The trust uses the money it raised to hold a spread of investments, run by a professional manager and overseen by an independent board. The FCA notes that investment trusts have been part of the UK market for more than 150 years. This guide explains how they work, why their share price can differ from what they own, and the costs and risks to check.

How is an investment trust different from a fund?

Investment trusts are closed-ended: the trust doesn’t create new shares when you invest or cancel them when you sell. You buy shares from other investors on the stock exchange, and sell them back the same way. A unit trust or OEIC is open-ended: it creates units when people invest and cancels them when they leave.

The FCA highlights the main differences from open-ended funds: investors can’t ask the trust to buy back their shares, the share price is driven by demand as well as asset values, trusts can borrow to invest, and they have independent boards. In practice:

	Investment trust	Unit trust or OEIC
How you buy and sell	Shares on the stock exchange, from other investors	Units from the fund manager
Price	Set by supply and demand, so it can differ from the value of the assets	Based on the value of the assets
Borrowing to invest	Allowed, often used	Limited
Oversight	An independent board of directors	The fund’s authorised manager and depositary
Selling pressure	Doesn’t normally have to sell assets to repay investors	Must pay out when investors sell

That last point is why investment trusts are often used for assets that are hard to sell quickly, such as property, infrastructure or shares in unlisted companies. The trust doesn’t have to sell them in a hurry when investors want their money back.

ETFs are also traded on the stock exchange, but they’re open-ended, and specialist firms create and cancel shares to keep the price close to the value of the assets. Our guide to ETFs explains the difference.

What are NAV, discounts and premiums?

A trust’s net asset value (NAV) is what its investments are worth, minus anything it owes, divided by the number of shares. Because the shares trade on the stock exchange, their price can differ from the NAV:

Trading at a discount: the share price is below the NAV. You’re paying less than the underlying assets are worth.
Trading at a premium: the share price is above the NAV. You’re paying more than the assets are worth.

Example (based on the Association of Investment Companies’ glossary): a trust’s NAV is 100p a share and its shares trade at 90p. That’s a 10% discount: you’re buying £1 of assets for 90p.

Discounts move around. The FCA reported that the average investment trust discount, based on industry data, narrowed from around 15% in 2024 to around 9.6% at the end of April 2026. A discount can be an opportunity, but it can also widen after you buy, so your shares can fall even if the assets don’t. Boards can try to manage a discount, for example by buying back their own shares, making tender offers, or holding regular votes on whether the trust should continue.

What is gearing?

Gearing means borrowing money to invest. The FCA notes that investment trusts can borrow to “gear” returns. If the investments bought with borrowed money rise by more than the cost of the loan, shareholders gain more than they would have without it. If they fall, losses are bigger too.

Example: a trust with £100 million of assets borrows another £10 million and invests it. If its investments rise 10%, the gain is about £11 million on £100 million of shareholders’ money: roughly 11% before borrowing costs. If they fall 10%, shareholders lose about 11%.

A trust’s factsheet shows its gearing as a percentage. Higher gearing means more risk.

How do investment trusts pay dividends?

Investment trusts pass on most of the income from their investments as dividends. Under the tax rules, a trust can usually keep back up to 15% of its income each year rather than paying it all out. Holding back some income in good years can help a trust keep paying dividends when income falls.

Outside an ISA or pension, dividends from investment trusts are taxed like other dividends: there’s a £500 allowance in 2026/27, then rates of 10.75%, 35.75% or 39.35%. Some trusts that hold mainly bonds can choose to pay interest distributions instead, which are taxed as savings interest. Our guide to tax on investments explains how both are taxed.

What does an investment trust cost?

Ongoing charges. The trust pays its manager and running costs out of its assets. These are shown as an ongoing charges figure (OCF).
Performance fees. Some trusts also pay their manager a fee if returns beat a target.
Stamp duty. Buying shares in a UK investment trust normally costs 0.5% stamp duty or Stamp Duty Reserve Tax, as with other UK company shares. Funds bought directly from the manager don’t carry this charge.
The spread and dealing charges. As with any share, there’s a gap between buying and selling prices, and many platforms charge for each trade.
Platform fees, which our platform fees guide explains.

How costs are shown has changed. In 2024 the government took listed investment trusts out of the old PRIIPs disclosure rules, which had required cost figures many in the industry said overstated trusts’ costs. They’re now covered by the FCA’s new Consumer Composite Investments rules, which started in April 2026 and become compulsory on 8 June 2027. Under these rules, the ongoing charges figure for a trust doesn’t include borrowing costs or the running costs of real assets such as property.

How are investment trusts taxed?

Inside an ISA or pension there’s no tax on dividends or gains. HMRC’s ISA rules allow shares in investment trusts that meet the requirements, which covers mainstream listed trusts.

Outside an ISA or pension:

dividends are taxed as described above
profits when you sell are subject to Capital Gains Tax, with a £3,000 allowance in 2026/27 and rates of 18% or 24%

The trust itself doesn’t pay corporation tax on the gains it makes when selling its own investments. To qualify for that treatment, HMRC must approve it as an investment trust: its business must be investing with the aim of spreading risk, and its shares must be traded on a regulated market.

What are the risks?

Market risk. The trust’s investments can fall, and so can its share price.
Discount risk. The discount can widen, so the share price can fall further than the assets.
Gearing. Borrowing magnifies losses as well as gains.
Concentration. Many trusts focus on one sector, region or type of asset, such as technology or private companies, which can make them more volatile.
Hard-to-value assets. Trusts holding property or unlisted companies rely on valuations that are only updated from time to time.

The Financial Services Compensation Scheme doesn’t protect you against a trust’s investments or share price falling. It may help if the platform holding your shares fails and can’t return them, up to £85,000 per person, per firm.

How do investment trusts compare with REITs and VCTs?

Two other types of listed investment company work differently and can’t be investment trusts under the tax rules:

Real estate investment trusts (REITs) own property. They don’t pay UK tax on their property rental profits and gains, but must pay out at least 90% of rental profits to shareholders. Those payments are taxed as property income rather than dividends.
Venture capital trusts (VCTs) invest in small, higher-risk companies. Investors can get income tax relief on new shares, which fell from 30% to 20% from 6 April 2026, as long as they hold the shares for the minimum period. VCTs are high risk and can be hard to sell.

Investment trust, fund or ETF?

We can’t say which suits you, but these are the practical differences:

For broad, low-cost market tracking, an index fund or ETF is usually simpler, and avoids discounts and gearing.
For specialist or hard-to-sell assets, such as property, infrastructure or private companies, the closed-ended structure can suit, because the trust doesn’t normally have to sell assets to repay investors.
For income, the ability to keep back some income can help steady dividends, but past dividend records don’t guarantee future payments.

Before buying, check the trust’s factsheet for its NAV, current discount or premium, gearing, ongoing charges and what it actually holds.

Sources

Our guides are general information and education, not personal financial advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser. Capital at risk. Investments can fall as well as rise, and you may get back less than you put in.