Capital Gains: You Only Pay Tax When You Sell

A capital gain is the positive difference between the price at which you sell an asset and the price at which you bought it. It is one of the most universal concepts in investment taxation.

Universal principles of capital gains:

• The taxable event is the sale: while you hold the asset, the gain is 'unrealised' or 'latent' and is not taxed. Only when you sell does it become 'realised' and create a tax obligation. There are exceptions: some countries tax wealth or its return every year even if you do not sell (such as the Netherlands), or a minimum return on funds (such as Germany).
• Short vs long term: some countries, such as the US or Australia, tax gains on assets you have held for more than a year at lower rates. Many others (Spain, the UK, Germany, France, Italy, Mexico…) tax shares the same regardless of how long you held them.
• Capital losses: if you sell for less than you paid, you generate a loss. In most tax systems, losses can offset gains in the same period, reducing the tax bill.