Capital gains

Capital gains are the gains made by the increase in the value of an asset, especially a financial instrument. For example, the holder of a share gains from any increase in the share price after purchase.

The other source of gains made from ownership of an asset is any income it generates: for example, the dividends paid to a shareholder. The combination capital gains and income is the total return.

The best known equity indices track only the capital gains made by their constituents, although total return indices also exist.

Capital gains are taxed differently from income and generally more favourably. UK tax law contains some provisions to prevent this being exploited for tax avoidance.