Capital Gains Tax

The tax applies to the gain, not the total sale price. The gain is usually the sale price minus the original purchase price and certain allowable costs, such as buying and selling fees or improvements to a property.

For example, if you buy shares for 4,000 and later sell them for 6,500, your capital gain is 2,500. Under a hypothetical rate of 15%, the tax would be 375.

Many countries treat capital gains differently from ordinary income. Gains on assets held for longer periods are often taxed at lower rates, and there may be an annual tax-free allowance. Some assets may be fully or partly exempt, such as a person's main home in certain countries or assets held in tax-advantaged accounts.

Losses on investments can often be used to offset gains, reducing the tax owed, and some systems allow unused losses to be carried forward to future years.

Because capital gains tax is usually triggered only when an asset is sold, investors can influence when they pay it by choosing when to sell. Rules, rates and allowances vary widely between countries and change over time.