The choice between buying a BOT (Treasury Bond) and a BTp (Multi-Year Treasury Bond) depends on your investment goals, your time horizon, and your risk tolerance.
Capital gain, or capital gain, is a term for the gain generated by the sale of an asset when its selling price exceeds the purchase price. This is a key concept for investors and taxpayers, as capital gains are subject to taxation. The tax charged varies depending on the security in which you invest.
1. How is capital gain calculated?
- Determination of the tax base. This is generally the purchase price plus any commissions or fees paid;
- Calculation of the amount realized. Corresponds to the sale price minus any commissions or fees paid;
- Subtraction of the tax base from the realized amount. If the asset was sold at a higher price than originally paid then a capital gain has been realized. If, on the other hand, the asset was sold for less than the purchase price then a capital loss was realized. The value of capital gain can also be calculated as a percentage by dividing the gain by the base and multiplying by 100.
Examples:
- Mario decides to buy a BTp with a face value of 10,000 euros with an annual interest rate of 2 percent. After a few years, the value of its BTp increases, as it now offers a better yield than newly issued instruments. The asset is sold for 10,500 euros. Mario realized a capital gain of 500 euros, in addition to the semi-annual coupon of the BTp, which is itself a periodically realized capital gain.
- Arianna buys 100 shares of a company at 50 euros per share, thus spending a total of 5,000 euros. After more than a year, the share price increases to 60 euros due to the company’s good performance. By selling the shares, Arianna gets a capital gain of 1,000 euros.
2. How are bond capital gains taxed?
In Italy, capital gains on bond investments are subject to a fixed taxation, which depends on the type of asset.
Capital gain taxation is set at:
- 26% for gains generated from the sale of corporate bonds;
- 12.5 percent for capital gains realized on government securities, such as BOTs and BTps, which are considered low-risk investments, and on supranational bonds.
3. How to declare the capital gain?
To understand how to declare capital gains, it is first necessary to determine the category of income to which they belong according to the TUIR, the Consolidated Income Tax Act. Capital gains fall within the category of miscellaneous income of a financial nature, ex. Article 67 of the TUIR.
Capital gains represent income that is uncertain in both realization and quantity, unlike income from dividends or interest, which is classified as investment income and is certain in its realization, although uncertain in quantity.
The tax declaration of the realized capital gain depends on the regime you join. Specifically:
- Declaratory regime: the investor manages investments and tax obligations independently, in which case capital gains should be reported in the tax return due by June 30 of the following year;
- Administered regime: the investor manages the investments, but delegates tax compliance to the bank, online broker or financial intermediary who acts as a tax withholding agent and pays taxes directly. The so-called cash regime applies and therefore the tax is applied when the capital gain is realized. To the investor, in fact, when the security is sold or matures, only the after-tax amount is distributed;
- Managed regime: the bank or financial intermediary manages both capital and tax compliance, making capital gain or loss calculations at the end of the year. The accrual basis applies, so capital gains tax is levied on capital gains accrued during the tax period. There is no difference between investment income and miscellaneous income, and the substitute tax is paid on the total operating income for the relevant period.
Where the first regime is opted for, the taxpayer who realizes a capital gain will have to complete the RT panel and, in particular (i) The consideration collected should be indicated in RT21, (ii) in RT22 the tax value recognized by the investment and (iii) in RT23 the realized capital gain or capital loss, if any.
When a capital loss is realized there is then the possibility of taking advantage of the offsetting mechanism, which can be operated within the four years following the time when capital gains of the same type were generated.
