The fundamentals — what CGT is and how it works
Capital gains tax is charged on the profit you make when you dispose of an asset that has increased in value. You pay tax on the gain — the difference between what you paid (your cost basis) and what you received — not on the full sale proceeds.
Three things determine how much CGT you owe in any country: what counts as a taxable disposal, how the gain is calculated, and what rate applies. Getting any of these wrong leads to either overpaying or underpaying.
CGT is a tax on realised gains in most countries — gains you have actually locked in by selling. Unrealised gains (paper profits on assets you still hold) are generally not taxed until you dispose of the asset. The Netherlands is the main exception among the countries covered here — it uses a deemed-return system that taxes wealth annually regardless of whether you sell.
What counts as a disposal
A disposal is not just a sale. In the UK, Germany, and US, all of the following are taxable disposals that can trigger CGT:
- Selling an asset — the standard case
- Gifting an asset to someone other than a spouse (treated as if sold at market value)
- Exchanging one asset for another — including swapping one cryptocurrency for another
- Using crypto to pay for goods or services — each transaction is a disposal at market value
- Receiving compensation for an asset that is lost, destroyed, or compulsorily purchased
What does not trigger CGT in most jurisdictions: holding an asset while it appreciates, transferring between spouses (UK/US), and in most cases inheriting assets (the beneficiary typically gets a stepped-up basis).
How the gain is calculated
Your taxable gain is: sale proceeds minus cost basis minus allowable costs.
Cost basis is what you paid for the asset — but there are nuances. If you bought the same asset multiple times at different prices, you need a method to determine which units you are selling. The UK uses share-pooling (average cost across all acquisitions). The US allows specific identification, FIFO, or average cost depending on the asset type. Germany uses FIFO for most assets.
Allowable costs vary by country but typically include acquisition costs (broker fees, stamp duty), disposal costs (agent fees, legal fees), and capital improvement expenditure for property.
Country comparison — CGT at a glance
| 🇬🇧 UK | 🇩🇪 Germany | 🇺🇸 US | |
|---|---|---|---|
| System | Realisation-based — tax on disposal | Realisation-based — flat withholding tax | Realisation-based — short/long-term distinction |
| Main rate (shares) | 18% / 24% | 26,375% flat | 0% / 15% / 20% (long-term) |
| Annual exemption | £3,000 | €1.000 (Sparer-Pauschbetrag) | None |
| Holding period benefit | No — same rates regardless of holding period | No — same flat rate (except crypto >1 year) | Yes — assets held >1 year get lower long-term rates |
| Property (main home) | Exempt (Private Residence Relief) | Exempt if owner-occupied for 3 years before sale | Exempt up to $250,000 / $500,000 (married) |
| Investment property | 18% / 24% — 60-day reporting | Taxed at personal rate if sold within 10 years | 0% / 15% / 20% long-term |
| Crypto | 18% / 24% — same as shares | Tax-free if held >1 year (no lending/staking) | Short or long-term rates depending on holding period |
| Loss carry-forward | Indefinite | Indefinite (separate pots for shares vs other) | Indefinite — $3,000/year offset against ordinary income |
| Tax filing | Self Assessment (60-day rule for property) | Broker withholds automatically (Anlage KAP for foreign) | Schedule D on Form 1040 |
The UK system taxes gains at the point of disposal with rates that depend on whether your total income plus gains keeps you within the basic rate band (£50,270 in 2025/26). Unlike the US, there is no benefit for long-term holding — shares held for 20 years are taxed at the same rate as shares sold after six months.
| Asset | Basic rate (income ≤ £50,270) | Higher rate (income > £50,270) |
|---|---|---|
| Shares, ETFs, funds, crypto | 18% | 24% |
| Residential property (not main home) | 18% | 24% |
| Business Asset Disposal Relief (BADR) | 14% | 14% |
| Trustees and personal representatives | 24% | 24% |
Annual exempt amount: £3,000 per individual, frozen until 2030. Use it or lose it — it cannot be carried forward. Spouses each get the full £3,000 and assets can be transferred between spouses at no gain, no loss before disposal to double the allowance.
60-day reporting rule: Residential property disposals must be reported and CGT paid within 60 days of completion — not via the annual Self Assessment return alone. Missing this deadline triggers automatic penalties starting at £100.
BADR rising: Business Asset Disposal Relief rises from 14% to 18% on 6 April 2026. Business owners planning exits should take note of this deadline.
For the full UK picture — worked examples, allowable costs, PRR, share matching rules, and ISA strategy — see the UK Capital Gains Tax Guide 2025/26.
Germany's Abgeltungsteuer (settlement tax) is a flat 25% tax on private investment income — dividends, interest, and capital gains from financial assets — withheld directly by your German bank or broker at the point of realisation. The effective rate including Solidaritätszuschlag (solidarity surcharge at 5.5% of the tax) is 26,375%. Church tax members pay an additional 8–9% of the base tax, reaching up to 27,99%.
The defining feature of the German system is that most of the tax is handled automatically. Your German broker withholds the correct amount, applies your Freistellungsauftrag (exemption order), and issues an annual certificate (Jahressteuerbescheinigung). In most cases, no further filing is needed for German-held accounts.
| Situation | Effective rate | Note |
|---|---|---|
| Shares, bonds, ETFs, dividends, interest | 26,375% | Abgeltungsteuer + Soli |
| Equity ETFs (≥51% equities) — Teilfreistellung | ~18,46% | 30% partial exemption on gains and dividends |
| Real estate ETFs — foreign | ~10,6% | 60% partial exemption |
| Real estate ETFs — German | ~5,3% | 80% partial exemption |
| Cryptocurrency held >1 year (no lending/staking) | 0% | Tax-free — private disposal rules (§23 EStG) |
| Cryptocurrency held <1 year | Personal rate | Taxed as miscellaneous income at personal income tax rate |
| Investment property sold within 10 years | Personal rate | Spekulationssteuer — up to 45% |
| Investment property sold after 10 years | 0% | Tax-free for private individuals |
Sparer-Pauschbetrag — the €1.000 annual allowance
Every German taxpayer gets €1.000 per year (€2.000 for married couples filing jointly) of investment income tax-free. This covers all capital income together — dividends, interest, and capital gains combined. To apply it automatically, you submit a Freistellungsauftrag to your broker. You can split it across multiple brokers, but the total cannot exceed the annual limit. Without a Freistellungsauftrag, your broker withholds tax even on gains within the allowance — you can reclaim this via your tax return, but it is easier to set it up upfront.
Equity ETF Teilfreistellung — the 30% partial exemption
Equity funds with at least 51% of their assets in equities benefit from a 30% Teilfreistellung (partial exemption). This means 30% of gains and dividends from qualifying equity ETFs — including MSCI World, S&P 500, and DAX trackers — are tax-free. The effective rate falls from 26,375% to approximately 18,46%. This is one of the most significant and underappreciated tax advantages available to German ETF investors.
Vorabpauschale — annual advance tax on accumulating ETFs
Germany taxes accumulating ETFs (funds that reinvest dividends rather than paying them out) annually through the Vorabpauschale — a notional advance tax designed to prevent indefinite tax deferral. Calculated each January based on the fund's value at the start of the year, the 2025 basis interest rate (Basiszins) of 2,53%, and adjusted for the Teilfreistellung, the Vorabpauschale is typically modest for long-term investors. Your German broker handles the calculation and deduction automatically — but you need sufficient cash in your account each January to cover it.
If your personal marginal income tax rate is below 25%, you can request a Günstigerprüfung in your tax return. The Finanzamt compares the flat 26,375% Abgeltungsteuer against your personal rate applied to the same income, and applies the lower result. Useful for lower-income years or investors with minimal other income.
Loss pools — important distinction
Germany maintains separate loss pools for shares versus other capital income. Losses on shares can only offset gains on shares. Losses on other capital assets (ETFs, bonds, derivatives) can offset any capital income. This separation matters if you realise losses on shares in the same year you realise gains on bonds — they cannot be netted across pools unless you file your tax return and request cross-institution netting from the Finanzamt.
The US system makes a fundamental distinction that neither the UK nor Germany makes: how long you held the asset. Assets held for more than one year qualify for long-term capital gains rates, which are significantly lower than ordinary income tax rates. Assets held for one year or less are taxed as ordinary income at your marginal rate.
| Filing status | 0% rate | 15% rate | 20% rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,026 – $518,900 | Above $518,900 |
| Married filing jointly | Up to $94,050 | $94,051 – $583,750 | Above $583,750 |
| Taxable income (single) | Rate |
|---|---|
| Up to $11,925 | 10% |
| $11,926 – $48,475 | 12% |
| $48,476 – $103,350 | 22% |
| $103,351 – $197,300 | 24% |
| $197,301 – $250,525 | 32% |
| $250,526 – $626,350 | 35% |
| Above $626,350 | 37% |
The difference between short-term and long-term rates is the most important planning variable in the US system. A higher-income investor selling shares after 11 months pays 35–37% federal tax on the gain. Wait one more month and pay 20%. For most investors the decision to hold past the one-year mark is straightforward when the rate difference is this large.
Net Investment Income Tax (NIIT)
Higher-income US taxpayers face an additional 3.8% Net Investment Income Tax on investment income including capital gains. This applies when modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly). Combined with the 20% long-term rate, the effective federal rate on capital gains for higher earners reaches 23.8%.
Primary residence exclusion
Gains on the sale of a primary residence are excluded from federal CGT up to $250,000 for single filers and $500,000 for married couples filing jointly, provided you have owned and used the home as your primary residence for at least 2 of the 5 years before the sale. This exclusion can be used once every two years.
No annual exempt amount
Unlike the UK's £3,000 or Germany's €1.000, the US has no general annual capital gains exemption. Every dollar of net gain above the 0% bracket threshold is taxable. This makes US investors more reliant on loss harvesting, tax-advantaged accounts (401(k), IRA, Roth IRA), and the primary residence exclusion as CGT planning tools.
US federal CGT rates shown here do not include state income taxes, which also apply to capital gains in most states. California taxes capital gains as ordinary income at up to 13.3%. New York adds up to 10.9%. States with no income tax (Florida, Texas, Nevada, Washington) add zero. Your total rate is federal + state combined.
The three most important differences across countries
1. Holding period — only matters in the US
In the UK, a share held for one month and a share held for 20 years are taxed at identical rates. In Germany the same is true for most assets (crypto is the exception). In the US, holding an asset for more than one year can reduce the tax rate from 37% to 20% for the highest earners — a 17 percentage point difference that makes holding period one of the most powerful tax planning levers available.
2. Annual exemptions — size varies enormously
The UK's £3,000 exemption is meaningfully useful. Germany's €1.000 covers only modest investment income. The US has no general exemption at all. The practical implication: UK investors should make a point of crystallising up to £3,000 of gains each year (or £6,000 for couples). German investors should always file a Freistellungsauftrag with every broker they use. US investors have no equivalent annual freebie to exploit.
3. Who collects the tax
Germany is the most automated: your broker withholds, calculates, and remits. Most investors with German accounts never need to think about CGT unless they use foreign brokers. The UK and US are self-assessment systems — you are responsible for calculating and reporting your gains. The UK adds a 60-day window for property that catches many investors off guard. In all three countries, using a foreign broker (outside your country of residence) eliminates the automatic withholding and makes self-declaration mandatory.