capital gain

Increase in the value of capital, such as houses or stocks and shares, between purchase and sale. The capital gain is nominally the sale price less the purchase price. For an individual, indexation is used in the case of assets purchased after 1982 to arrive at the cost of the asset. Individuals are liable to Capital Gains Tax on gains above a specified level. In the case of corporations, capital gains are listed in the shareholders' funds on the balance sheet.

Tax is payable by individuals on profits (the capital gain) made when assets, including securities and real property, are sold at higher prices than they were bought for. Most countries tax capital gain, although the tax is payable on realized rather than accrued income. Critics of capital gains tax point out that only monetary, rather than real, gain is taxed, and so may be distorted in times of high inflation.