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Millions of UK residents hold shares, savings, bonds, or other types of financial investments. These can include ISAs, unit trusts, or company shares. Compared to other assets, such investments often generate good returns over the long term. However, understanding the tax implications of this income is crucial for compliance with HMRC regulations.

If you have received dividends, interest, or income from selling shares, you may need to report this through the Self Assessment tax return system. The purpose of this article is to guide you through the key rules, thresholds, and processes for declaring this type of income.

Determining If You Need to File a Tax Return

Not all investment income is subject to tax, and not everyone needs to file a Self Assessment tax return. However, if you receive untaxed income from investments, savings, or dividends that exceeds your annual tax-free allowances, then you will be required to register with HMRC and file a return.

For the 2024/25 tax year, the standard Personal Allowance is £12,570. You are only liable for Income Tax on income that exceeds this threshold. Additionally, there is a Dividend Allowance of £1,000, which allows you to receive dividend income up to that amount without paying tax.

If your income from dividends and other investments takes your total earnings above these allowances, Self Assessment becomes necessary.

Understanding Dividend Income

Dividend income refers to the payments you receive as a shareholder in a company. These payments are typically made from the company’s post-tax profits. Although part of your dividend income may fall within your tax-free allowances, any amount above those thresholds becomes taxable.

The rates of tax on dividend income are lower than standard Income Tax rates and are tiered according to your income band:

• Basic rate: 8.75 percent
• Higher rate: 33.75 percent
• Additional rate: 39.35 percent

To determine the applicable rate, you need to calculate your total income, including wages, pensions, and any other income. Based on the combined total, your dividend income will be taxed accordingly. If your income spans multiple bands, the dividend portion in each band is taxed at the corresponding rate.

Tax-Free Investment Income

Certain types of investment income are entirely exempt from tax. Interest and dividends earned through ISAs do not need to be declared on your Self Assessment tax return. The same applies to gains from ISAs and income from National Savings & Investments Premium Bonds.

This makes ISAs a popular vehicle for those seeking to invest without having to manage additional tax reporting or pay Income Tax on returns.

What is the Self Assessment Tax Return?

Self Assessment is HMRC’s system for collecting Income Tax from individuals whose income is not taxed automatically. If you receive untaxed income from investments or shares and it exceeds the allowable thresholds, you must complete the Self Assessment tax return using form SA100.

Registration must occur by 5 October following the end of the relevant tax year, which concludes on 5 April. Once registered, you’ll have until 31 January the following year to file your tax return online. Paper submissions must be received by 31 October.

How to Register for Self Assessment

To register, you must provide:

• Your National Insurance number
• Your full name, including any previous names
• Your current address and the date you moved in
• Your date of birth
• Your gender
• A valid email address and telephone number
• Confirmation of any previous Self Assessment registration

Once registration is complete, HMRC will send you a Unique Taxpayer Reference (UTR) number, which you will use on all tax documents. You’ll also receive an activation code for your online account, allowing you to file returns digitally.

Submitting the Correct Forms

In addition to the main SA100 tax return, individuals who receive investment income often need to complete supplementary pages, such as the SA101. This form allows you to declare other income types, including:

• Dividends
• Interest from savings not taxed at source
• Share scheme benefits
• Capital distributions

Filing both forms ensures accurate reporting and reduces the risk of penalties.

Record Keeping for Investment Income

Good record keeping is essential when reporting income from shares or investments. You should retain:

• Dividend vouchers
• Share transaction records (including purchase and sale documents)
• Bank statements for interest income
• Statements from investment platforms
• ISA statements (for reference, although these don’t need to be declared)

Maintaining organised records will support the figures you enter on your Self Assessment tax return and help you respond quickly to any HMRC queries.

Income from Joint Investments

If you own shares or savings jointly with another person, such as a spouse or civil partner, the income is usually split 50/50 unless otherwise agreed and supported by legal documentation. Each person should declare their share of the income when filing their tax return.

It’s important to ensure that both parties meet their tax obligations and account for their share of the income separately, particularly if one of you is in a higher tax bracket.

Dividend Reinvestment Plans (DRIPs)

Some shareholders choose to reinvest dividends instead of taking them as cash. These reinvested dividends are still classed as income for tax purposes and must be declared. The fact that you did not receive the income in cash does not make it exempt from tax liability.

Make sure to include reinvested amounts when calculating your total dividend income for the year.

Foreign Dividends and Investment Income

If you receive dividends or interest from overseas companies or foreign savings accounts, these also count as taxable income and should be included in your Self Assessment return. You may be eligible to claim Foreign Tax Credit Relief if tax has already been deducted in the country where the income originated.

Exchange rates can affect how much tax is due, so it’s important to convert foreign income to pounds using the correct rate at the time of payment. HMRC provides exchange rate guidance for tax purposes.

Examples of When Self Assessment is Required

Here are a few common examples where you would need to file a Self Assessment tax return:

• You earn £1,800 in dividends from shares held outside an ISA and no other income.
• You receive interest from a fixed-rate savings account that brings your total untaxed income above £1,000.
• You sell shares and make a gain that exceeds the Capital Gains Tax exemption threshold.
• You receive both UK and foreign dividends that together exceed the tax-free dividend allowance.

In all these cases, registration and timely filing are necessary to comply with HMRC rules.

Deadlines and Penalties

It is essential to be aware of Self Assessment deadlines:

• Register for Self Assessment by 5 October following the tax year
• File your paper tax return by 31 October
• File your online tax return by 31 January
• Pay any tax owed by 31 January

Failure to file on time results in automatic penalties, starting at £100 even if no tax is due. Additional penalties apply for continued delays and for inaccurate or incomplete returns.

Introduction to Capital Gains Tax

When you sell or dispose of certain types of investment assets and make a profit, you may have to pay Capital Gains Tax (CGT). This tax is charged on the gain you make, not on the total amount you receive. It’s important to understand when CGT applies, how to calculate it, and how to report it accurately through Self Assessment. We will guide you through the rules and allowances related to CGT, with a focus on share sales and other common financial investments.

What Triggers Capital Gains Tax?

CGT may become payable when you dispose of an asset. Disposal includes:

• Selling the asset
• Giving it away as a gift (excluding gifts to spouses or civil partners)
• Exchanging it for something else
• Receiving compensation, such as an insurance payout

 

Common assets subject to CGT include:

• Shares and securities (not held in an ISA)
• Units in unit trusts
• Investment funds
• Some types of bonds (excluding Premium Bonds and Qualifying Corporate Bonds)
• Property (not your main home)

 

The Capital Gains Tax Allowance

Everyone is entitled to a tax-free allowance known as the Annual Exempt Amount. For the 2024/25 tax year, this allowance is £3,000. This means you only pay tax on your total gains above this amount.

For example, if you made a profit of £4,200 from selling shares, only £1,200 would be subject to CGT.

You do not need to report gains to HMRC if your total taxable gains are below the allowance and the total proceeds from asset disposals are less than four times the allowance threshold (i.e., £12,000).

Capital Gains Tax Rates

The rate of CGT depends on your overall taxable income and the type of asset you’ve sold. For investments like shares, the rates are:

• 10 percent for basic rate taxpayers
• 20 percent for higher and additional rate taxpayers

These rates apply to gains from financial investments. Gains from residential property (excluding your main home) are taxed at higher rates: 18 percent or 28 percent, depending on your income band.

To work out which rate applies, add your total taxable income to your capital gains. If this combined amount pushes you into the higher band, the higher CGT rate will apply to some or all of your gains.

Calculating Your Capital Gain

To determine your capital gain:

• Work out the sale price or proceeds of the asset.
• Subtract the original purchase price (also known as the base cost).
• Deduct any allowable costs, such as broker fees, stamp duty, or improvement costs (if applicable).

 

Example: You bought shares for £5,000 and later sold them for £9,500. You also paid £50 in broker fees.

• Sale price: £9,500
• Purchase price: £5,000
• Broker fees: £50
• Gain: £9,500 – £5,000 – £50 = £4,450

If this is your only gain for the year, and the CGT allowance is £3,000, then £1,450 is taxable.

Reporting Capital Gains Through Self Assessment

If your total gains exceed the CGT allowance or your total disposal proceeds are over four times the exemption threshold, you must report your gains to HMRC.

You do this using the Self Assessment system. Alongside your SA100 tax return, you’ll need to complete the Capital Gains Summary (SA108) form. This is used to declare gains and losses from:

• Shares and securities
• UK residential property
• Other assets

If your gains are from multiple sources or include foreign assets, ensure you categorise each correctly on the form.

Claiming Capital Losses

If you make a loss when disposing of an asset, you may be able to offset this against your gains in the same tax year, which reduces your overall CGT liability.

You must report the loss to HMRC, even if you don’t owe any tax for that year. Losses can be carried forward to future years but must be registered with HMRC within four years of the end of the tax year in which the loss occurred.

Using Share Pooling Rules

When you sell shares, HMRC requires you to use share pooling rules to calculate gains. Rather than tracking each individual share transaction, all shares of the same class in the same company are grouped into a single pool.

Each time you buy new shares, the pool is adjusted by averaging the total cost and quantity. When you sell, the cost of the shares disposed of is calculated using the average cost per share in the pool.

There are some exceptions, such as shares acquired within 30 days of disposal (the same-day and bed-and-breakfasting rules), which must be matched separately.

Disposals Involving Spouses and Civil Partners

Transfers of assets between spouses and civil partners are generally exempt from CGT. This means you can transfer shares to your partner without triggering a tax charge.

This can be a useful planning tool if one partner pays tax at a lower rate. You can transfer ownership before selling the shares to reduce the overall CGT liability.

Be aware that once the asset is transferred, the new owner is treated as if they acquired the asset at the original cost.

Reporting Deadlines

Capital gains must be reported in your Self Assessment tax return by the 31 January deadline following the end of the tax year.

For example, for gains made during the 2024/25 tax year (ending 5 April 2025), the deadline to report and pay any CGT due is 31 January 2026.

Gains from UK residential property must be reported and the CGT paid within 60 days of completion using HMRC’s online property reporting service, separate from the Self Assessment process.

CGT and Inherited Assets

If you inherit shares or other investments, you may be liable for CGT if you sell them later for a gain. The base cost of the asset is its market value at the date of the deceased’s death.

You are not taxed when you inherit the asset, but the person’s estate may be subject to Inheritance Tax. You only pay CGT if you dispose of the inherited asset and make a gain above the threshold.

Gifting Shares to Charity

Gifting shares to a UK-registered charity is generally exempt from CGT. You also may be able to claim Income Tax relief on the value of the gift.

To qualify, the shares must be listed on a recognised stock exchange. If the gift meets HMRC’s conditions, you won’t need to report a gain or pay any CGT on the donation.

Records You Need to Keep

When calculating and reporting capital gains, accurate recordkeeping is essential. Keep documents such as:

• Original purchase contracts or receipts
• Details of any improvements or additional investments
• Records of sale or disposal
• Broker and legal fees
• Correspondence related to gifted or inherited assets

HMRC recommends keeping these records for at least five years after the 31 January submission deadline.

When You Don’t Need to Pay CGT

There are several situations where CGT is not applicable:

• You sell assets within your annual allowance
• Gains from ISAs and Premium Bonds are exempt
• Transfers between spouses or civil partners
• Gifts to charity
• Sale of personal belongings worth less than £6,000 (excluding vehicles and property)

 

Tax Planning for Investments

Managing tax on investment income isn’t just about compliance—it’s also about strategy. With a solid understanding of tax allowances, exemptions, and investment structures, you can significantly reduce your overall liability. We explore practical ways to optimize your tax position, keep accurate records, and submit your Self Assessment return effectively.

Whether you receive income from dividends, interest, or gains from selling shares, taking a proactive approach to planning can help you make the most of the tax system while ensuring that you stay on the right side of HMRC.

Making the Most of Your Allowances

One of the most effective ways to reduce your tax bill is to use all available tax-free allowances. These include:

• The Personal Allowance of £12,570
• The Dividend Allowance of £1,000
• The Capital Gains Tax annual exemption of £3,000
• The Personal Savings Allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers)

These allowances are reset each tax year, so making sure you use them annually is key. Planning when to sell investments or take dividends based on your income levels can help keep you under the thresholds.

For example, if your dividend income is just above the allowance, consider delaying or spreading out dividend payments across tax years to reduce or eliminate tax liability.

Timing Asset Sales Wisely

Timing plays a big role in tax efficiency. If you are planning to sell shares or other investments that have gained in value, think about spreading disposals over two tax years. This allows you to use your Capital Gains Tax exemption in each year rather than realising a large gain in a single year.

Selling assets at the end of one tax year and others at the beginning of the next can split the tax impact and potentially keep you within the lower CGT rate band.

Structuring Investments for Efficiency

Choosing the right type of account for your investments can make a significant difference. ISAs, pensions, and other tax-advantaged accounts allow your money to grow free from tax. The main options include:

• Stocks and Shares ISA: No tax on dividends, interest, or capital gains
• Lifetime ISA: Offers a government bonus for those saving to buy a home or for retirement
• Pension funds: Contributions often come with tax relief, and gains within pensions are tax-free

Using these accounts to hold your investments can eliminate the need to report this income altogether.

Transferring Assets Between Partners

If your spouse or civil partner pays a lower rate of tax, transferring income-generating investments to them can reduce the overall household tax burden. Transfers between spouses and civil partners are tax-free and don’t trigger Capital Gains Tax.

This is especially useful for couples where one partner earns below the Personal Allowance or falls within the basic rate band, allowing dividend or savings income to be taxed at lower or even zero rates.

Keep in mind that legal ownership must be transferred, and the recipient is then responsible for declaring the income.

Claiming Reliefs and Deductions

Various reliefs and deductions are available for investors, especially if you’re involved in business-related investments. These include:

• Enterprise Investment Scheme (EIS): Offers Income Tax relief and CGT deferral
• Seed Enterprise Investment Scheme (SEIS): Provides generous tax benefits for investing in startups
• Venture Capital Trusts (VCTs): Allow Income Tax relief on investments in small, high-risk companies

You must meet certain conditions to qualify, and some schemes carry higher investment risk. Nevertheless, they are valuable for reducing tax liability while supporting UK businesses.

Keeping Investment Records

Effective recordkeeping is essential for tax reporting and audits. Even if some income is tax-free, keeping detailed records helps you verify figures and stay compliant.

You should maintain:

• Dividend vouchers
• Contract notes for share purchases and sales
• Bank statements for savings interest
• Annual statements from investment providers
• Details of any reinvested income or automatic share purchases

These documents are especially important when completing your Self Assessment return, calculating gains, or claiming losses.

Avoiding Common Reporting Mistakes

Many people make avoidable errors on their Self Assessment returns when it comes to investment income. Some common mistakes include:

• Forgetting to include reinvested dividends
• Failing to report foreign income
• Using incorrect figures for capital gains
• Misreporting jointly held investments

Double-checking your entries, using HMRC’s guidance, and retaining your documentation can help you avoid penalties or correction requests.

When and How to Declare Foreign Investment Income

If you hold overseas shares or savings accounts that pay interest or dividends, these must be included in your tax return. Foreign income can be subject to UK tax, although you may be able to claim relief if tax was already deducted abroad.

You must:

• Convert the foreign income to pounds using HMRC’s published exchange rates
• Declare the full gross amount, even if foreign tax has been withheld
• Use the foreign income section of the SA106 form when filing your return

Foreign tax relief can prevent double taxation, but rules vary depending on the country and any double tax agreement.

How to File Your Self Assessment Return

Once you have gathered your income and investment data, you’ll need to submit your Self Assessment tax return before the annual deadline. The key forms to complete include:

• SA100: Main Self Assessment form
• SA101: For additional income types, such as dividends
• SA108: For reporting capital gains
• SA106: For foreign investment income, if applicable

Filing online through HMRC’s portal allows quicker processing and includes built-in calculations, but you must register in advance to get access. Make sure you submit by 31 January following the end of the tax year to avoid penalties.

Understanding Payment Deadlines and Penalties

In addition to the filing deadline, you must pay any tax owed by 31 January. If your tax bill is more than £1,000, you may need to make payments on account, which are advance payments towards the next year’s bill.

Penalties for late filing include:

• £100 if your return is up to three months late
• Additional daily penalties of £10 per day after three months (up to 90 days)
• Further penalties of 5 percent of tax owed if over six or twelve months late

Interest is also charged on late payments, so it’s important to plan ahead and budget for your bill.

Using Software and Tools to Stay Organised

Investment income can become complex, especially if you trade frequently or hold assets in different currencies. Consider using digital tools or spreadsheet templates to track:

• Purchase and sale dates
• Income received from each asset
• Tax deducted at source
• Realised and unrealised gains

These tools help simplify the completion of your return and ensure accurate figures are used.

When to Seek Professional Advice

If you have a large portfolio, foreign investments, or complex tax affairs, seeking advice from a tax professional or accountant can be beneficial. They can help you:

• Optimise your tax position
• Ensure compliance with current regulations
• Identify reliefs and allowances you may have missed

While there is a cost involved, it can save money in the long run by helping you avoid overpaying or underreporting.

Planning Ahead for the Next Tax Year

Smart tax planning is a year-round task. You can prepare for next year’s return by:

• Reviewing and adjusting your investment mix
• Making use of your ISA and pension allowances early
• Scheduling disposals to spread gains over multiple years
• Tracking dividend income and interest in real-time

Being proactive can make the Self Assessment process more manageable and reduce your overall tax burden.

Introduction to Advanced Reporting

Once the basics of investment income reporting are understood, it’s important to explore specific scenarios that could affect how you report to HMRC. These might include complex portfolios, dealing with trusts or children’s investments, managing investment clubs, and navigating changes in tax law. This part dives deeper into these advanced topics to help you stay prepared and fully compliant.

While some of these situations may not apply to every taxpayer, being aware of them is beneficial—especially as your financial portfolio grows or if you begin managing investments on behalf of others.

Reporting Income From Investment Trusts

Investment trusts are popular among UK investors seeking diversified exposure to shares and bonds. They pay dividends and can generate capital gains just like individual shares. The income from investment trusts must be reported in the same way as dividends from standard company shares.

Keep records of:

• Dividend payments received
• Reinvestment or drip schemes
• Capital gains on disposals

Many investors overlook the tax implications of reinvested income. Even if you don’t receive cash, the dividend counts as income for tax purposes and must be reported on your return.

Children’s Investment Accounts

Parents often set up savings and investment accounts for their children. These can include Junior ISAs or bare trusts. If a parent gives money that generates more than £100 in annual income for the child (excluding Junior ISAs), the income may be taxable in the parent’s name.

Tax-efficient planning includes:

• Using Junior ISAs where returns are tax-free
• Keeping track of who provides the capital
• Monitoring income thresholds to avoid triggering parent taxation rules

Capital gains made in the child’s name may be eligible for the child’s own allowance. This creates opportunities for tax efficiency but must be managed carefully.

Income From Investment Clubs

Investment clubs pool members’ money to invest jointly in shares and other assets. Each member must declare their share of income and gains on their own Self Assessment return.

Tax implications include:

• Declaring dividend income received through the club
• Calculating each member’s share of capital gains from disposals
• Ensuring accurate recordkeeping for each member’s contribution and share

Clubs are not treated as separate legal entities for tax purposes, so individual members remain responsible for reporting and paying any tax owed.

Using Capital Gains Losses Effectively

If you have incurred capital losses in a tax year, these can offset gains to reduce your CGT bill. You must claim the loss in your tax return to use it. Losses can be carried forward indefinitely if they are reported on time.

Tips for using losses:

• Offset gains in the same tax year first
• Track unused losses and carry them forward
• Use losses strategically in high-gain years

You cannot carry back capital losses to previous tax years, so prompt reporting is key to preserving future tax benefits.

Handling Crypto and Digital Assets

Cryptocurrency investments are increasingly common and must be declared if gains exceed the CGT allowance. Crypto is treated as an asset by HMRC and subject to CGT on disposals, including selling, trading, or using crypto to purchase goods or services.

Tax considerations include:

• Calculating gains using the same pooling rules as shares
• Keeping records of each transaction
• Reporting disposals on the SA108 form

Even if you do not convert crypto back to cash, disposals may still be taxable. Using crypto-to-crypto trades can create unexpected liabilities, so maintaining detailed logs is essential.

Non-Resident and Overseas Investment Income

If you are not UK-resident for tax purposes, your investment reporting requirements may change. However, UK-source income such as dividends from UK companies or rental income still needs to be declared.

For UK residents with foreign investment income:

• Declare foreign dividends and gains in pounds sterling
• Use the SA106 to report foreign income
• Claim double tax relief where applicable

Residency status is determined based on statutory residency tests. Changing your residency can impact the scope of your tax obligations and should be reviewed before making major investment decisions.

Dealing With HMRC Inquiries or Amendments

If HMRC queries your tax return or requests clarification, it’s important to respond promptly and provide accurate supporting documents. Inaccurate or omitted information regarding investment income can trigger investigations.

Best practices include:

• Keeping five years’ worth of supporting documents
• Responding through your HMRC online account or in writing
• Amending your return voluntarily if you discover an error

You can amend a Self Assessment return up to 12 months after the deadline. For example, if you submitted your 2024/25 return by 31 January 2026, you can make changes until 31 January 2027.

Impact of Tax Law Changes

Tax rules are subject to change through annual Budgets or fiscal updates. For instance, recent reductions to the Dividend Allowance and CGT exemption mean more investors are now brought into scope for tax reporting.

To stay ahead of tax changes:

• Review annual Budget announcements
• Adjust investment strategies ahead of tax year-end
• Consult HMRC updates or professional advisers

Even small changes to thresholds can impact whether you need to report income or pay tax. Regularly reviewing your position ensures you’re not caught out by new rules.

Tax Implications of Investment Bonds

Some life insurance policies, known as investment bonds, may generate chargeable events that need to be reported. These include withdrawals, assignments, or maturity.

Chargeable gains are treated as income, not capital gains, and taxed accordingly. Top-slicing relief may be available to reduce tax liability if gains are spread over several years.

Include such gains in your tax return if they exceed your annual allowances, and keep all documentation issued by the provider.

Employer Share Schemes

If you participate in an employer share scheme, you may receive shares as part of your compensation. Some schemes offer tax advantages, while others may trigger tax liabilities on acquisition or sale.

Common schemes include:

• Share Incentive Plans (SIPs)
• Save As You Earn (SAYE)
• Company Share Option Plans (CSOPs)

Tax implications vary depending on whether conditions are met and when the shares are sold. Gains may be subject to CGT or Income Tax depending on the scheme rules.

Dealing With Complex Portfolios

As your investment portfolio grows to include different asset types—domestic shares, international funds, bonds, and alternative assets—the complexity of your reporting increases. Consider separating assets by tax treatment:

• Tax-free (ISAs, pensions)
• Income-taxable (dividends, interest)
• CGT-liable (shares, property, crypto)

Using portfolio management software or spreadsheets to track these categories can simplify year-end reporting and reduce errors.

Conclusion

Effectively managing and reporting investment income is a critical part of financial responsibility for individuals in the UK, particularly as personal portfolios grow more complex. Across this series, we have explored the full scope of what investors need to know from basic requirements to advanced scenarios ensuring a thorough understanding of how to stay compliant while minimising tax liabilities.

We introduced the foundational concepts: how dividend and savings income is taxed, when you must register for Self Assessment, and how to determine if your investment earnings cross the tax-free thresholds. Understanding these starting points is essential for any investor managing untaxed income.

We delved into Capital Gains Tax, a crucial area for anyone selling shares or other investments at a profit. We covered how to calculate gains, what the current allowances and rates are, how to use losses effectively, and when you must file the SA108 form. Many investors overlook the impact of timing disposals and applying the correct reporting method, especially when working with share pools.

We shifted to strategic tax planning, focusing on maximising personal allowances, structuring investments efficiently through ISAs and pensions, and understanding how to legally reduce your tax burden by transferring assets or spreading income. Good recordkeeping and avoiding common reporting mistakes were also key themes, ensuring accurate and penalty-free tax returns.

Finally, addressed more advanced and nuanced situations, including investment clubs, foreign income, crypto assets, employer share schemes, and investments held in trust or for children. These scenarios often involve more complex rules, but they are increasingly relevant to modern investors who diversify beyond traditional savings accounts and domestic shares.

Together, this series provides a complete and practical guide to Self Assessment for investment income. Whether you’re a first-time investor or managing a diversified portfolio, staying informed, organised, and proactive can make a significant difference in both compliance and financial outcomes.

By taking full advantage of available allowances, planning your disposals, and maintaining meticulous records, you can ensure that you meet all HMRC obligations while preserving as much of your investment return as legally possible. As tax laws and thresholds evolve, regularly reviewing your strategy and seeking professional guidance when needed—will help you stay ahead of any changes and avoid costly mistakes.