The group, which serves around seven million people in the North West, will limit its 2014/15 price rise to no more than Retail Prices Index (RPI) inflation, meaning the group will forgo a 1.2% hike on top of RPI.
Its move follows pressure from regulator Ofwat to consider reducing price increases amid the squeeze on family finances.
Cheshire-based United said it would use part of a £75 million net tax rebate to offer the £20 million discount, gained from a long-running dispute over corporation tax with HM Revenue and Customs.
The remainder of the tax windfall will also be used to benefit customers, with £17 million earmarked for those struggling to pay their bills and £38 million for "future sharing with customers".
Another £90 million in tax savings is also expected between 2015 and 2020, which it said will be used to help customers.
Its announcement comes as United seeks to calm mounting public anger over rising household bills and supplier profits.
It hit customers with a 4% price rise in April - inflation plus 1% - which pushed half-year revenues up by £30 million to £853 million.
But it revealed that it was proposing price rises below inflation under its business plan for 2015 through to 2020, which will be submitted to Ofwat before Monday's deadline.
Steve Mogford, chief executive of United, said on average the group's prices will rise by less than inflation across the entire decade to 2020.
He added that the group was also investing at least £800 million this year in its network and on improving services.
United revealed that shareholders will benefit from a 5% increase in their dividend payout, to 12p a share.
Severn Trent reported a 0.4% increase in half-year underlying earnings to £266.9 million yesterday and confirmed a 6% increase in its shareholder payout.
It also said prices would rise by less than inflation in the next financial year, but is still finalising its new five-year business plan.
Regulator Ofwat determines how much water firms can spend and raise prices within five-year "price control" periods.
The watchdog is taking a tough line on tariffs, having refused an application for an additional price increase asked for by Thames Water.
Ofwat chairman Jonson Cox recently wrote to all water companies asking them to consider whether they needed to increase their bills for 2014/15 by the full amount set out in the last price review, given the squeeze on household incomes.