A tax on the increase in the value of assets. This is usually payable only when an asset is realized by sale or bequest. CGT is levied in various countries - in the UK since 1965. It is usually payable only on gains in any year in excess of some minimum amount, and in the UK only on gains on excess of the rise in the Retail Price Index since the asset was acquired. In the UK, CGT is not payable in respect of a taxpayer's principal residence. In the USA it is a federal income tax, with lower rates for long-term holdings, and is politically controversial.
A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price.
Australia
Capital gains tax in Australia is only payable upon realized capital gains, except for certain provisions relating to deferred-interest debt such as zero coupon bonds. The sale of personal residential property is normally exempt from Capital Gains Tax, except for gains realized during any period in which the property was not being used as your personal residence (for example, being leased to other tenants).
In 1999 following a report by Alan Reynolds the Australian government significantly cut the capital gains tax rate.
Belgium
There is no capital gains tax in Belgium.
Germany
There is currently no capital gains tax after a holding period of one year for shares or real estate.
Hong Kong
Hong Kong has no capital gains tax. As no tax is due on the capital gains, such individuals are able to avoid paying large amounts of tax which would otherwise have been due on their salaries, however corporation tax would be due on their company profits.
New Zealand
New Zealand does not have a capital gains tax in most cases. However, certain capital gains are classified as taxable income in New Zealand and thus are subject to income tax, such as regular share trading.
Sweden
The capital gains tax in Sweden is 30% on realized capital income.
Switzerland
There is no capital gains tax in Switzerland.
Thailand
There is no separate capital gains tax in Thailand. All earned income from capital gains is taxed the same as regular income.
Individuals who are resident or ordinarily resident in the United Kingdom (and trustees of various trusts) are subject to a capital gains tax, with exceptions for, for example, principal private residences, holdings in ISAs or gilts. Every individual has an annual capital gains tax allowance: gains below the allowance are exempt from tax, and capital losses can be set against capital gains in other holdings before taxation. Individuals pay capital gains tax at their highest marginal rate of income tax (0%, 10%, 20% or 40% in the tax year 2004/5) but since 6 April 1998 have been able to claim a taper relief which reduces the amount of a gain that is subject to capital gains tax (reducing the effective rate of tax), depending on whether the asset is a "business asset" or a "non-business asset" and the length of the period of ownership.
Companies are subject to corporation tax on their "chargeable gains" (the amounts of which are calculated along the lines of capital gains tax). Almost all of the corporation tax raised on chargeable gains is paid by life assurance companies taxed on the I minus E basis.
The rules governing the taxation of capital gains in the United Kingdom for individuals and companies are contained in the Taxation of Chargeable Gains Act 1992.
United States
In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income, but the tax rate for individuals is lower on "long-term capital gains", which are gains on assets that had been held for over one year before being sold. The tax rate on long-term gains was reduced in 2003 to 15%, or to 5% for individuals in the lowest two income tax brackets. Short-term capital gains are taxed at a higher rate: the ordinary income tax rate.
The reduced 15% tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, has been extended through 2010 as a result of the Tax Reconciliation Act signed into law by President Bush on May 17, 2006. As a result:
In 2008, 2009, and 2010, the tax rate on eligible dividends and capital gains is 0% for those in the 10% and 15% income tax brackets.
After 2010, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket.
After 2010, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).
After 2010, the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated.
Exemptions from capital gains taxes (CGT) in the United States include:
An individual can exclude up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale. If an individual or corporation realizes both capital gains and capital losses in the same year, the losses cancel out the gains in the calculation of taxable gains. Corporations are permitted to "carry back" capital losses to off-set capital gains from prior years, thus earning a kind of retroactive refund of capital gains taxes.The IRS allows for individuals to defer capital gains taxes with tax planning strategies such as the charitable trust (CRT), installment sale, private annuity trust, and a 1031 exchange. Although there are some offshore bank accounts that advertise as tax havens, U.S. law requires reporting of income from those accounts and failure to do so constitutes tax evasion.
Criticisms
It is sometimes claimed that capital gains tax in conjunction with income tax is a case of double taxation. Some might think that just because, in the United States, income subject to capital gains tax treatment is excluded from ordinary income taxation by 26 USC ยง 1(h) , and so it is legally impossible to doubly tax capital gains under that law. However this additional future income is already subject to income tax so the capital gain is already fully taxed. Specifically many items that are subject to Capital Gains Tax are not expected to produce any future income.
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