If your holding is NOT in an ISA, it's much easier to keep track of your tax position using income units, as the income tax element is listed on the dividend slips, and on sale of the units you simply deduct the original cost from the sale proceeds to find the profit for CGT purposes. If, on the other hand, you use accumulation units, the income tax element is still listed on the dividend slips, but when it comes to sale time, you need to remember to add to the original cost of the units the total of accumulated net income that has been reinvested within the units, otherwise you could inadvertently suffer self-induced double taxation : (a) tax on dividends along the way, then (b) capital gains tax on what looks at first glance like profit, but is in reality just reinvested, taxed dividend income!
If the unit price gets sub-divided by the managers one or more times during the time that you hold the units, you need to adjust all the figures to allow for this as well. There are easier ways to spend your time than sitting with an ice-pack on your head while you manipulate your calculator or spreadsheet.......!
If you're holding the units in an ISA, there's no further income tax or CGT to calculate, so which type of unit you select depends on your needs and convenience. Since units in an ISA are necessarily held for you by an ISA provider in a nominee account, you are very often able to do free switching from one type of holding to the other, but you need to check the position with your ISA provider.
Other factors:
(1) If you use income units, you can then choose whether to , when to, and where to reinvest the money as it dribbles in. But there may be a dealing cost involved that does not occur with accumulation units, and you need to bear in mind that most people's timing of the market is poor. If you're a patient contrarian, and good at sensing the market conditions, you could score well from collecting dividends from income units of a steady fund and reinvesting the money in a volatile fund when the market is looking temporarily fragile.
(2) If you use accumulation units, the value for money that you get from the reinvestment will depend on the relative values of the unit price and the dividend at the time of the reinvestment. If the fund is a reliable steady dividend payer, but the unit price is volatile, you could do well out of the pound-cost averaging effect; if the dividend is volatile but the unit price unremarkable in its fluctuations, pound-cost averaging won't help much.
(3) If a fund only offers accumulation units, this may be because its aim is capital growth and the companies used in the portfolio produce so little income that it's not cost-effective to distribute a few pence per year to those whose main need is not income anyway. If a fund is aimed heavily at the income investor, it may not offer accumulation units, as few would ask for them, and again the administration required is not worth it. If both income units and accumulation units are offered, the fund manager will probably assume that there are potential investors who want either income now or feel comfortable with the thought that income is being generated, even if it doesn't need to be withdrawn to pay the bills.
So there are horses for courses, and the types of unit offered may be a good clue as to what the manager thinks the fund's true market-place is.
