If you’re among the army of retail investors who have made big money trading in shares of GameStop and other previously downtrodden stocks, one thing is certain: The taxman will come.

Trading by small investors caught fire in 2020, as boredom brought on by pandemic lockdowns combined with convenient, no-fee mobile investing apps like Robinhood. In recent weeks, some of those investors, fuelled by social media chatter, have driven up the price of GameStop, a bricks-and-mortar video game retailer that has been losing money. Their reasons for buying the stock vary, but some wanted to thwart the big investors that were betting that the share price would fall — otherwise known as shorting the stock. Trading in other mundane stocks, like Blackberry and the AMC theatre chain, has surged as well. Some individual investors may already have notched tens of thousands of dollars in profits — even millions, if online boasting is to be believed — as share prices soared. Here’s the thing: Those investors may have to pay hefty capital gains taxes. The gains are on paper, of course, until the holder sells the shares. And taxes for stock sales occurring this month wouldn’t be due until April 2022. If those investors want to cash in on their gains, they may be caught off guard by how much they owe the government, accountants say. Unlike with employment income, there’s no automatic deduction of taxes. Someone who bought and sold GameStop shares quickly, in the midst of the trading frenzy that began in early January, would probably pay very high tax rates.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of February 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.