Capital gains tax

How is capital gain defined and triggered?

Most jurisdictions define a capital gain as the difference between the disposal proceeds (or fair market value on disposal) and the acquisition cost (cost basis) of an asset, with statutory adjustments for transaction costs, capital improvements, and inflation indexation in some jurisdictions. The triggering event is typically a disposal — sale for fiat, exchange for another asset, deemed disposition on emigration, gift in some jurisdictions, or a partial-disposal event under share-pooling rules. The line between capital and revenue characterisation is the principal threshold question: revenue gains are taxed at ordinary income rates; capital gains are taxed under the capital-gains framework, which is typically more favourable. Common badges-of-trade tests (frequency, intention at acquisition, holding period, financing, level of organisation) drive the characterisation in jurisdictions that recognise the distinction. The US, UK, Canada, Australia, Germany, France, Italy, and most major economies recognise the distinction; jurisdictions with simpler frameworks (Norway's general-income inclusion of all capital gains, Sweden's separate Capital Income category) collapse the distinction into rate-based handling.

What rate frameworks apply across major jurisdictions?

Four broad rate-framework families dominate. Preferential-rate frameworks apply discounted rates to long-term capital gains: the US offers 0/15/20 percent LTCG rates for assets held more than 12 months [SC1]; Italy applies a flat 26 percent on most listed-securities gains via imposta sostitutiva. Inclusion-rate frameworks include only a percentage of the gain in taxable income: Canada includes 50 percent for individuals (effective top rate 26.65 percent at federal-and-provincial top combined rates) [SC3]; South Africa includes 40 percent for individuals (effective top rate 18 percent at the 45 percent top marginal rate). Flat-rate frameworks apply a separate flat rate regardless of holding period: the UK rates moved to 18/24 percent for non-residential property gains (basic-rate band / higher-rate band) in October 2024 [SC2]; France applies the 30 percent PFU (12.8 percent IT + 17.2 percent social) on most listed-securities gains; Israel applies a flat 25 percent (30 percent for substantial shareholders); Sweden applies a flat 30 percent in the Capital Income category. Holding-period-discount frameworks combine the inclusion and time-based concepts: Australia gives resident individuals a 50 percent CGT discount on assets held more than 12 months [SC4]; New Zealand's absence of a comprehensive CGT relies entirely on dominant-purpose-of-disposal characterisation.

Which jurisdictions have no comprehensive CGT?

A small set of jurisdictions has no comprehensive Capital Gains Tax for individual filers — the conceptual outlier among major economies. Singapore: gains on capital assets are not subject to income tax for individual filers; trading characterisation can re-categorise gains as revenue [SC7]. Hong Kong: territorial framework — gains on capital assets disposed of as part of trade in Hong Kong are subject to Profits Tax; non-trade capital gains are not. Switzerland: capital gains on movable private assets (including individual portfolio holdings of securities held in non-trader status) are exempt from federal direct tax and from cantonal direct tax in most cantons; capital gains on private real estate are taxed cantonally at separate cantonal rates. Malaysia: no comprehensive CGT for individual filers, with the post-YA-2024 introduction of a Capital Gains Tax under section 4(aa) ITA on unlisted-share disposals as a narrow exception. New Zealand: no comprehensive CGT, but the Bright-line Test (currently 2 years on residential land sold from 1 July 2024 onwards) and the dominant-purpose-of-disposal anti-avoidance rules catch most active investment. The UAE has no individual income tax and no CGT for individuals.

What exemptions and reliefs are typically available?

Most jurisdictions with CGT operate one or more of the following exemption-and-relief mechanisms:

• Annual exemption / threshold: UK GBP 3,000 per year from 2024/25 [SC2]; Ireland EUR 1,270 per individual; Germany EUR 1,000 for private-sale transactions including crypto post-2024; Italy EUR 2,000 for crypto. The annual exemption frameworks reduce compliance burden for casual investors.
• Principal-residence exemption: most jurisdictions exempt the disposal of an individual's principal residence — UK Private Residence Relief, US Section 121 (USD 250,000 single / USD 500,000 joint exclusion on a primary-residence gain held 2 of 5 years), Canada Principal Residence Exemption, France primary-residence exemption.
• Long-term-holding discount or step-up: Australia 50 percent CGT discount on >12-month-held assets; Germany >1-year hold tax-free for individual private cryptoasset disposals; New Zealand the absence of comprehensive CGT for non-Bright-line-affected long-held real estate.
• Entrepreneur / business-disposal relief: UK Business Asset Disposal Relief (10 percent on lifetime qualifying gains up to GBP 1 million); Ireland Entrepreneur Relief (10 percent on lifetime qualifying gains up to EUR 1 million); US Section 1202 Qualified Small Business Stock exclusion (up to USD 10 million or 10× cost basis).
• Inflation indexation: Argentina applies inflation-adjustment to acquisition cost; Brazil partial inflation-adjustment for some asset classes; Israel limited indexation on real-estate cost; UK abolished indexation for individuals in 2008 with limited corporate-CGT carry-over.

How are short-term versus long-term gains distinguished?

The short-term-versus-long-term distinction is the principal lever in jurisdictions with preferential-rate frameworks. The US uses 12 months as the holding-period threshold — assets held more than 12 months qualify for preferential LTCG rates; assets held 12 months or less are short-term and taxed at ordinary income rates [SC1]. Australia uses the same 12-month threshold for the 50 percent CGT discount. India distinguishes long-term and short-term thresholds that vary by asset class — listed equity shares require 12 months for long-term (post-Budget 2024 12 months for all listed-securities); unlisted shares require 24 months; immovable property requires 24 months [SC5]. Germany's 1-year threshold for individual private cryptoasset disposals is the most distinctive holding-period rule among major economies (gains on assets held more than 1 year are tax-free for individuals). France uses no general short/long distinction for the PFU but applies progressive-discount allowances tied to holding period for the optional progressive regime. Italy's TUIR-defined regime is largely flat-rate without holding-period distinctions.

How do treaties allocate capital-gains taxation?

The OECD Model Tax Convention's Article 13 (Capital Gains) allocates taxing rights for capital-gains across treaty partners, with progressive sophistication added in updated Models. The headline allocations: (i) Article 13(1) — gains on immovable property are taxable in the source country (where the property is located); (ii) Article 13(2) — gains on movable assets that form part of a permanent establishment are taxable where the PE is located; (iii) Article 13(3) — gains on ships and aircraft operated in international traffic are taxable only in the residence country; (iv) Article 13(4) — gains on shares deriving more than 50 percent of value from immovable property in the other country are taxable in that country (the real-estate-rich-company anti-avoidance provision); (v) Article 13(5) — gains on other movable assets (the catch-all) are taxable only in the residence country [SC7]. Variants exist — many treaties exempt gains on portfolio-holding shares (below specified ownership thresholds) from source-country taxation under specific carve-outs, while others preserve source-country rights more broadly. The OECD Multilateral Instrument's Principal Purpose Test applies to capital-gains treaty access in modified treaties, raising the bar for treaty-shopping arrangements.

What does departure / exit-tax exposure look like?

Many jurisdictions impose exit-tax exposure on departing residents holding unrealised capital gains on substantial-shareholding positions or other specified assets. The pattern: at the moment of residency cessation, the filer is deemed to dispose of in-scope assets at fair market value, triggering immediate or deferred-payment-with-security capital-gains liability. Canada's section 128.1 ITA imposes a deemed disposition of most assets at fair market value at the date of emigration, with exemptions for Canadian real property and registered plans [SC3]. France's Article 167 bis CGI imposes exit tax on substantial-corporate-participation holders (above EUR 800,000 unrealised gains, or 50 percent holdings) with deferred-payment options. Germany's section 6 AStG imposes exit tax on substantial-shareholding emigration. Israel's section 100A ITO operates similarly. The US exit tax under IRC §877A applies to long-term lawful permanent residents who give up green-card status and to citizens who renounce citizenship, deeming a sale of all assets at fair market value the day before expatriation. Practitioners commonly review exit-tax exposure as part of any pre-emigration position-taking conversation.

How does inflation indexation affect cost basis?

Inflation indexation — adjusting acquisition cost upward to reflect cumulative price-level changes between acquisition and disposal — is the principal mechanism for relieving inflation-driven nominal capital gains. Most major economies have abolished indexation in favour of either preferential rates (US LTCG, UK 18/24, Italy 26 percent flat) or inclusion-rate carve-outs (Canada 50 percent inclusion, South Africa 40 percent). The principal jurisdictions that retain meaningful indexation: Argentina applies inflation-adjustment to acquisition cost given the high-inflation environment; Brazil partial inflation-adjustment for some asset classes; Mexico inflation-adjustment under specific provisions of the ISR Law; Israel limited indexation on real-estate cost. India previously offered indexation benefit on long-term capital gains via the Cost Inflation Index but the Finance (No. 2) Act 2024 removed indexation for most assets in favour of a flat 12.5 percent rate (with limited grandfathering provisions). The trade-off between rate-based relief and indexation-based relief is the principal policy lever in jurisdictions with persistent inflation.