The highest-paying UK income funds

Traditional UK income funds have had an excellent run of late. The FTSE 100 has made a total return of around 16 per cent so far in 2025, propelling the index to fresh highs and rewarding those who invest in UK-listed blue-chips for their dividends.

A number of active funds have managed to outpace the index, with Temple Bar (TMPL) shares returning around 32 per cent and City of London (CTY) almost 20 per cent.

But those that generate the greatest total returns don’t always pay the biggest dividends. That’s something we’ve seen with Law Debenture (LWDB), whose investment team has captured some big returns partly because it doesn’t always pick the stocks with the highest yields.

For those who want a fund to pay a big and reliable income and are prepared to forgo some of the highest total returns, some funds stand out.

With that in mind, we look at which funds have delivered the biggest payouts over the past 12 months.

Big payers

Our analysis looked at funds in the IA and AIC UK Equity Income sectors that delivered the greatest payout, as at 19 September 2025, had you invested £10,000 exactly a year earlier.

To put this in the context of wider performance, we have also set out each fund’s total returns over that same 12-month period. This is only a snapshot in time, but gives a sense of how funds balance out capital gains and income.

On top of that, we list the fund’s yield – although readers should note that while up-to-date share price dividend yields are available for investment trusts, we can only provide trailing 12-month dividend yields for open-ended funds. These are also likely to be up to date only to the end of August, based on when the funds last issued monthly updates.

Caveats aside, it is useful to note that a mixture of open-ended funds and trusts populate the list, and that some different approaches to income investing are also on display. Note the presence of Jupiter UK Multi-Cap Income (GB00BRC7L374) at the top of the table, for example.

As its name suggests, this fund looks beyond the large-cap shares that dominate many UK income funds – large-caps do account for 36 per cent of the fund, but mid-caps account for 21 per cent, and smaller companies for more than 40 per cent.

Big beasts such as BP (BP.), British American Tobacco (BATS), HSBC (HSBA) and Legal & General (LGEN) sit in its top 10 holdings list, but so do smaller names such as Chesnara (CSN) and Diversified Energy Company (DEC).

The fund has returned around 27 per cent over three years – something that puts it well behind the leading UK large-cap portfolios, but ahead of ‘multi-cap’ rivals run by the likes of Octopus, Marlborough, Premier Miton and Gresham House over this timeframe.

In theory, funds like these should be well placed to capture gains made if the FTSE 250 and FTSE Small Cap indices start to catch up with the blue-chip index. This, however, is a big if.

Note that Jupiter UK Income (GB00B6QR2553), run by the same management team, has paid out slightly less over the period but made much greater total returns.

Market cap considerations might explain some of this. The fund has a higher 40.6 per cent allocation to large caps, with 29 per cent in mid caps and 22 per cent in small caps.

Other funds with a multi-cap approach such as Chelverton Dividend (SDV) also make the list, but large-cap portfolios continue to hold their own on the income front.

City of London, the market darling with a focus on big names and a 59-year record of consecutive dividend increases, paid out around £484 over the period. This trust is having a moment in the sun, with strong total returns and its shares consistently trading at a moderate premium to net asset value (NAV) in recent months.

It focuses on some classic income plays, and since the start of 2024 the team has had an overweight allocation to the banking sector, which makes up 14 per cent of the portfolio. The sector has been a big beneficiary of higher interest rates, with banks’ structural hedge helping maintain profitability even as base rates fall.

“We believe it is right to remain overweight in the sector given the continuing beneficial effect of the structural hedge, our view that dividend payout ratios can increase and the undervaluation compared with previous periods of elevated banking profitability,” the team said in a recently published set of annual results for the trust.

A position in BAE Systems (BA.) has boosted returns, too. The fund also has Shell (SHEL), Tesco (TSCO), Relx (REL) and Unilever (ULVR) in its top 10 holdings list.

In terms of other subsectors, the team favours investment banking and brokerage services, life insurers and consumer staples.

Maxed out

A common trait of lists like these is the appearance of income maximiser funds, which can write derivative options to sacrifice some capital gains as a way of boosting income.

Schroder UK Listed Equity Income Maximiser (GB00BF781863) stands out, with Fidelity Enhanced Income (GB00B87HPZ94) appearing further down the list.

The derivative strategies mean such funds can miss out on gains in rising markets, although the Schroders fund has done well by the total return metric over the past year.

This isn’t the only way funds are getting creative to generate income. Earlier this year, Temple Bar pointed to the fact that UK-listed companies were increasingly carrying out share buybacks, either instead of or alongside dividends, effectively limiting the amount of income the portfolio generates.

To address this, the trust has opted to pay an additional 3p per share a year, or an extra percentage point of yield, using capital reserves, and rival Dunedin Income Growth (DIG) is looking to follow suit.

The latter recently echoed Temple Bar, pointing to the fact that UK companies “increasingly favour share buybacks over dividend distributions”.

As such, the Dunedin board wants to increase its dividend and maintain a progressive policy, using capital and revenue reserves to give the investment team “additional flexibility” to focus on total returns.