Capital Gains Tax

Quick definition

Capital Gains Tax is the tax that you pay when you sell an asset that has increased in value since you purchased it.

Key details

• Capital Gains Tax is only due when you sell an investment, and it only applies to capital assets like stocks, bonds, jewellery and real estate
• The rate varies by country; make sure you check your national tax authority’s website for more details
• Investors often avoid paying Capital Gains Tax by avoiding selling profitable investments and selling losing investments instead

What is Capital Gains Tax?

It is a form of tax imposed by many governments that requires people to pay a percentage of any money gained from the sale of investments. Investors must pay Capital Gains Tax on all profits from the sale of capital assets like real estate, stocks, cryptocurrencies and gold coin collections.

Across European OECD countries, Denmark levies the highest rate of Capital Gains Tax, with a top marginal capital gains rate of over 40%. However, a small number of countries don’t charge any capital gains tax at all, including the Cayman Islands, Singapore, Switzerland, Monaco, Belgium (if income isn’t regarded as professional), Malaysia, Belize, New Zealand and Hong Kong.

Capital Gains Tax is pooled with all other forms of tax to bankroll state expenditure on things like welfare, pensions, healthcare, roads, emergency services, defence, overseas aid and national debt interest.

How do I pay Capital Gains Tax?

This varies by country, but in the UK, you must report your gain to HMRC by the 31st of December in the tax year after the gain was made.

If you have calculated what you owe yourself, you can use the ‘real-time’ Capital Gains Tax service to pay your tax straight away. After your gains have been reported, you will be sent a letter or e-mail with a payment reference number telling you how to pay. If you need to change your report using the service, you will need your report reference number (starting with RTT), which you should receive by e-mail within 10 days.

Alternatively, you can report your gains in a Self Assessment tax return in the tax year after you dispose of assets.

What happens if I don’t pay Capital Gains Tax?

It is against the law to evade Capital Gains Tax, so if you fail to do so, you may be subject to an audit and could face a fine and/or prison time.

What is the Capital Gains Tax rate in my country?

Once again, this will vary depending on your national government’s policy.

In the United Kingdom, basic-rate taxpayers (who earn between £12,571 and £50,270 per annum) are charged 10% on gains from the sale of assets and 18% on property.

Higher or additional-rate payers (who earn over £50,270) are charged 20% on profits made from the sale of assets and 28% on property.

Do I have to pay Capital Gains Tax on cryptocurrency?

When cryptocurrencies first emerged into the financial sphere, governments struggled to categorise them – were they were a form of speculative gambling (tax-free), or were they genuine capital assets?

These days, government policies have become fairly comprehensive for cryptoassets, and in the UK, a Manual has been released detailing the rules. In short, you have to pay the same Capital Gains Tax that you would have to pay on the sale of any other asset.

Where can I learn more?

For more information about investing, check out our investing hub. You can also learn more by heading over to our courses.