What is capital gains distribution?

Capital gains distribution is the payment passed on to shareholders when a holding in a mutual fund is sold by the fund manager for more than it was originally bought. The profit gained is taxable unless the fund is classed as tax-free.

Where have you heard about capital gains distribution?

If you’ve ever filled in a tax return, you’ll see a section on capital gains tax. You pay it on the profit gained if you sell an asset that’s increased in value, such as a second home or shares that aren’t part of an ISA or SIPP.

What you need to know about capital gains distribution.

Capital gains are distributed to shareholders at least once a year. There are two types of capital gains - short-term and long-term. Short-term gains include gains on stocks or bonds held for one year or less, while long-term gains include gains on securities held for more than a year.

You can choose to be paid distributions directly in cash, but most investors prefer to have them reinvested so they buy additional shares of the fund.

In the UK, you're allowed to make a certain amount of capital gains each year before you need to pay tax on your profits.

Find out more about capital gains distribution.

Read our definition of capital gains tax to learn more about the tax paid on a profitable asset.