What Is Capital Gains Tax (CGT)?
Capital Gains Tax (CGT) is a tax on profit realised on the disposal of an asset, with rates and exemptions set by national law.
Also known as: CGT, Tax on capital gains.
How Capital Gains Tax (CGT) works
Capital Gains Tax applies when an individual or entity disposes of a capital asset such as shares, real estate or cryptoassets, and the taxable amount is generally the disposal proceeds minus the acquisition cost and allowable expenses, with residence status, asset type and holding period deciding whether and how the gain is taxed. Many systems tax residents on worldwide gains and non-residents mainly on gains linked to local land or property, while some countries tax gains as ordinary income and others apply separate rates, annual exemptions or holding-period relief. In the United States, for example, IRS guidance treats assets held more than one year as long-term, with most net long-term gains taxed at 0%, 15% or 20% depending on taxable income, and short-term gains taxed as ordinary income. Where two countries both claim a gain, a double tax treaty generally allocates taxing rights: under the UK-Germany treaty, gains on immovable property may be taxed where the property is situated, while gains on property not covered by specific paragraphs are taxable only in the alienator's state of residence. Timing rules, exit taxes on deemed disposals, loss relief and the treatment of cryptoassets differ widely and remain subject to local rules.
Capital Gains Tax (CGT) vs Personal Income Tax
Unlike Personal Income Tax, which generally reaches recurring income such as salary, business profit, interest or dividends, Capital Gains Tax targets the increase in value realised when an asset is disposed of. Some countries nonetheless fold capital gains into the income tax base, so the two may share a return and a rate schedule.
| Capital Gains Tax (CGT) | Personal Income Tax | |
|---|---|---|
| Taxable event | Disposal of a capital asset, such as a sale, exchange or gift where national law treats a gift as a disposal | Receipt or accrual of income during the tax year |
| Tax base | Disposal proceeds minus acquisition cost and allowable expenses | Gross income minus deductions and personal allowances |
| Rates and reliefs | Separate rates, annual exemptions or holding-period relief in many countries; ordinary rates in others | Progressive or flat schedule set by national law |
Example
Illustrative example: A freelance designer buys listed shares and an apartment while resident in Country A, then moves and becomes tax resident in Country B before selling both at a profit. Country B, as the new state of residence, generally claims both gains under its domestic law, while Country A may assert rights through an exit tax, a temporary non-residence rule or its source rules for local real estate. If the treaty between the two countries follows the pattern of the UK-Germany treaty, the gain on the listed shares is generally taxable only in the state of residence at the date of disposal, whereas the gain on the apartment may also be taxed in Country A, with Country B granting relief under its double taxation rules. The outcome turns on the exact residence date, the asset class, any anti-abuse provisions and each country's timing rules for recognising the gain.
Common misconception
Myth: Moving to a country which does not tax capital gains before selling assets means the gain escapes taxation everywhere.
Reality: Former countries of residence may still tax the gain through exit taxes, temporary non-residence rules or source rules for real estate, and treaty protection generally depends on residence status at the date of disposal.
Frequently asked questions
How does capital gains tax work when moving abroad?
Capital Gains Tax on a cross-border move generally depends on residence at the date of disposal, the asset type and any exit or temporary non-residence rule in the former country, while double tax treaties allocate taxing rights and provide relief.
Do non-residents pay capital gains tax?
Non-residents are generally subject to Capital Gains Tax mainly on gains from local immovable property and certain property-rich company shares, while gains on other assets are often taxable only in the state of residence under treaty wording such as the UK-Germany treaty.
What is the difference between short-term and long-term capital gains?
Short-term and long-term capital gains differ by holding period where a country applies such a split; in the United States, assets held more than one year give long-term gains, generally taxed at 0%, 15% or 20%, and short-term gains are taxed as ordinary income.
Related terms
- Personal Income Tax — Often confused; some countries tax gains as income
- Exit Tax — Taxes unrealised gains when residence ends
- Gains from Alienation — Treaty article allocating taxing rights over gains
- Non-Resident Capital Gains Tax — Source-country charge on non-residents' property gains
- Double Tax Treaty (DTT) — Decides which country may tax a cross-border gain
- Zero Capital Gains Rate — Zero band that can apply within capital gains tax
Related guides
- Capital gains taxation in Malta — Country-level application of capital gains rules
- Capital gains taxation in Thailand — Country-level application of capital gains rules
- Tax treaties and international taxation — How treaties allocate taxing rights over gains
Sources
- IRS Tax Topic 409, Capital gains and losses
- UK-Germany Double Taxation Convention 2010 (SI 2010/2975)
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
