Capital gains tax

Capital gains tax is charged on the gain from disposing of an asset: broadly, the sale price minus the original purchase price and allowable costs such as dealing fees. In most countries it applies only when a gain is realised, usually on sale, so a rise in value you have not cashed in is not yet taxed. Losses realised on other disposals can usually be set against gains, and unused losses can often be carried forward. Many countries give an annual tax-free allowance, exempt or partly exempt a main home, and exempt gains inside tax-advantaged accounts such as ISAs in the UK or IRAs and 401(k)s in the US.

Rates and rules vary widely by country and change often. Some countries tax gains at special rates below income tax, sometimes lower still for assets held longer; in the US, gains on assets held for more than a year qualify for lower long-term rates. Others simply add gains to income, and a few do not tax most private investment gains at all. Because tax is usually due only on realisation, deferring a sale defers the tax, one reason buy-and-hold investing can be tax-efficient. Gains are usually measured in your home currency, so exchange-rate moves can create a taxable gain or loss. Your tax residency determines which country can tax your gains.