When you invest in assets like stocks, bonds, foreign currency, or even hold cash in certain savings accounts, you may be required to pay capital gains tax (CGT) on any income or profit earned. This usually happens when you sell the assets for more than you bought them, though in some cases, CGT can apply even if the assets haven't been sold.

It can seem complex, but this guide is here to simplify the process and help you manage it more efficiently. You’ll learn what CGT is, how to calculate it, and how to make sure you're only paying what’s legally required—no more, no less.

What is capital gains tax (CGT)?

CGT is the payment you are obliged to make when you profit from buying and selling shares, property or other financial assets.

If you sell an asset at a price that is higher than what you paid for it, any returns could be liable for CGT.

Holding some assets such as exchange-traded funds (ETFs) can generate CGT liabilities even if you do not sell the position. In such cases, a mark-to-market reading is taken to determine the difference in the notional value of this holding at the beginning and end of a tax year. If the value has increased, you might need to pay a percentage of this gain in the form of CGT.

While some banks, brokers and other financial institutions that hold your assets might withhold any CGT due on your account and pay it directly to the national tax office, it is your obligation to ensure that all of your CGT requirements are met, as incorrect reporting or underpayment of tax can result in fines and legal charges.

What assets have capital gains tax?

Establishing if your investment activity might bring you within the scope of CGT starts with considering what capital assets you hold. While the below list is not exhaustive, it outlines some types of assets that are liable for CGT:

• Stocks and shares
• Cryptoassets
• Bonds
• Foreign currency
• Some pension plans
• Interest
• Funds held in overseas accounts
• Dividends
• Rents
• Royalties
• Professional fees
• Annuities
• Alimony
• Real estate
• Foreign investments
• Some private (non-business) assets

There are also some investments that fall outside of the scope of CGT. It is important to do your own research to establish whether this is the case, but items that might be CGT-exempt include:

• Furniture
• Art
• Jewellery
• Privately owned property that is deemed to comply with ‘parcelhusreglen’ regulations

If you need help establishing whether CGT applies to you, it may be wise to request help from a specialist tax agent. They can ensure that you do not miss any CGT liabilities, file your returns correctly, and identify ways to minimise your CGT-burden.

How do I calculate my CGT?

Capital Gains Tax (CGT) at Somerset Security is calculated based on the net profit you earn when you sell financial assets like stocks, ETFs, or cryptocurrencies. The CGT rate is applied to each withdrawal, and it follows a tiered structure where larger profits attract lower tax rates.

Here’s the breakdown of CGT rates:

• Less than $100,000 – 18%
• $100,000 – $499,999 – 15%
• $500,000 – $999,999 – 12%
• $1,000,000 and above – 10%

For example, if your net profit from a withdrawal is $600,000, your CGT would be 12%, or $72,000. This leaves you with $528,000 after tax.

Tip: CGT is calculated per withdrawal transaction. Consider combining multiple smaller sales into one larger withdrawal for a potentially lower tax rate.

How can I minimise my CGT burden?

• Plan your withdrawals strategically: Larger withdrawals with higher profits fall into lower CGT brackets. Timing and combining asset sales can reduce your effective tax rate.
• Monitor profit tiers: Understanding the profit ranges and associated tax rates helps you forecast taxes and avoid falling into higher tax brackets with smaller, frequent withdrawals.
• Consult a financial advisor: While Somerset Security doesn’t offer personal tax advice, a certified tax expert can help you legally optimize your CGT liabilities and ensure compliance with your jurisdiction’s requirements.