capital appreciation
Capital appreciation is the rise in the value of something you own, like a share or a plot of land, between when you bought it and now.
In plain English
So why did your uncle buy that piece of land in Epe five years ago and just leave it, doing nothing with it, not even farming on it?
Because he was not planning to use it. He was planning to sell it later for more than he paid. That gap between what he paid and what he can sell it for today is capital appreciation, and it is one of the oldest games in money.
It works the same way with shares. Say you bought units of a company on the Nigerian Exchange when the share price was ₦12. Two years later, the company is doing well, more people want in, and the price climbs to ₦20. You have not sold anything, you have not touched a kobo, but your shares are now worth more. That rise is capital appreciation.
It is different from dividends or rent, which pay you along the way while you hold the asset. Capital appreciation only shows up as a gain when you compare the value now to the value before, and it only becomes real money in your pocket once you actually sell.
A Nigerian in London putting money into a stocks and shares ISA is often chasing the same thing, buying shares in companies she believes will be worth more in ten years, not for the small dividends now but for the growth in value over time.
This is why people distinguish between growth investments, bought mainly for appreciation, and income investments, bought mainly for what they pay you regularly. Many smart portfolios hold both.
Chidi buys 1,000 shares of a bank at ₦15 each, spending ₦15,000. Three years later the shares trade at ₦28 each, making his holding worth ₦28,000. His capital appreciation is ₦13,000, but it stays a paper gain until he sells.
Questions people ask
Is capital appreciation the same as profit?
Not quite. It is the increase in value while you still hold the asset. It only turns into an actual, spendable profit once you sell and lock in the price.
Can an asset lose value instead of appreciating?
Yes. This is called capital depreciation or a capital loss. Shares, land and property can all fall in value, which is why spreading your money across different assets matters.
Do I pay tax on capital appreciation in Nigeria?
Generally, tax on gains applies when you sell and realise the profit, often called capital gains tax, rather than while you are simply holding the asset and watching its value rise.
Last reviewed