Finance glossary
Capital Gain
Also known as: Capital gains
In simple terms
A capital gain is the profit you make when you sell something for more than you paid for it — for example, selling shares for £7,000 that you bought for £5,000 gives you a £2,000 gain.
On this page
What does capital gain mean?
A capital gain is the increase in value of an asset — such as shares, a fund or a second property — realised when you sell it for more than it cost you. Until you sell, any rise is only a “paper” or unrealised gain and could still disappear.
The opposite is a capital loss, where you sell for less than you paid. Because investments can fall as well as rise, a gain is never certain, and buying at the wrong moment can turn into a loss instead.
How a capital gain works
Your gain is broadly the sale price minus what you paid, minus certain allowable costs. If your total gains in a tax year go over the annual exempt amount, you may owe Capital Gains Tax on the excess, at rates that depend on the asset and your income.
Gains made inside a Stocks and Shares ISA or a pension are free of Capital Gains Tax. Realised losses can often be set against gains to reduce a tax bill, so it is worth keeping records of what you buy and sell.
How could this affect me?
Capital gains are how many investors grow their money over the long term — through the rising value of what they hold rather than income. But the same investment that can gain can also lose value, so gains are not guaranteed.
If you invest outside a tax wrapper and make larger gains, keep an eye on the annual exempt amount and any Capital Gains Tax due, and check the current thresholds on GOV.UK before you sell.
Example
Buy shares for £5,000 and later sell them for £7,000:
| Purchase price | £5,000 |
|---|---|
| Sale price | £7,000 |
| Capital gain | £2,000 |
Whether any Capital Gains Tax is due depends on your total gains for the year, the annual exempt amount and your other income. Held inside an ISA, the gain would be tax-free. Figures are illustrative.
Things to watch out for
- A gain is only real once you sell — until then it can still fall in value.
- Investments can lose value, turning an expected gain into a capital loss.
- Capital Gains Tax may be due on larger gains made outside an ISA or pension.
- Past rises are not a guide to future performance — timing can turn a gain into a loss.
Know your rights
- Every individual has an annual Capital Gains Tax exempt amount, set by the government — gains up to that level in a tax year are tax-free (see GOV.UK for the current figure).
- Gains made within a Stocks and Shares ISA or a registered pension are free of Capital Gains Tax.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- GOV.UK, Capital Gains Tax — rates and allowances (opens in a new tab). Accessed 22 Aug 2026.
- MoneyHelper, Tax on savings and investments (opens in a new tab). Accessed 22 Aug 2026.