short term capital gain
Short Term Capital Gain is the profit you make when you sell an asset like shares or crypto shortly after buying it, usually within a year or less.
In plain English
"Guy, I bought that crypto in March and sold it in June, I don't know why my accountant is asking me tax questions." "Ah, that's exactly why she's asking o. You made money fast, that's short term capital gain, and it doesn't hide from tax the way long term gains sometimes do."
Here's the simple version. When you buy something purely as an investment, shares, crypto, land you're flipping, even certain bonds, and you sell it for more than you paid, that profit is a capital gain. If you held the asset for a short while before selling, often defined as a year or less depending on the country and the asset type, that gain is called short term.
The reason this label matters is that short term gains are often taxed differently from long term ones, and usually less kindly. Many tax systems reward patience. Hold an asset longer and you might enjoy a lower rate or even an exemption. Sell quickly and you may get taxed at your regular income rate, which can be steeper.
A Nigerian example makes this real. Say you buy shares on the Nigerian Exchange for ₦500,000 in January and the price rises fast, so you sell in April for ₦650,000. That ₦150,000 profit came from a holding period of just three months. It's a short term gain, and depending on how Nigerian tax rules treat that particular asset, it may be taxed differently from a gain you sat on for two years.
In the United Kingdom, someone trading shares through an ordinary account, not an ISA, might buy in January and sell in October. Any profit could count toward their yearly Capital Gains Tax allowance, and how long they held it can affect the rate applied.
For the person abroad sending money home, this matters if you're investing in Nigerian stocks or property while living in London or Houston. Selling too quickly might more than cost you missed growth, it might cost you more in tax too.
You buy shares for ₦500,000 in January and sell them for ₦650,000 in April, five months later. That ₦150,000 profit is your short term capital gain, and it gets taxed according to whatever short term rate applies to that asset in your country.
Questions people ask
What counts as short term versus long term for capital gains?
It depends on the country and sometimes the asset. Many places use one year as the cutoff, so anything held twelve months or less before selling is short term, and anything held longer is long term. Always check the specific rule for the asset you're dealing with, since shares, property and crypto aren't always treated the same way.
Is short term capital gain the same as regular income?
Not exactly, but in many tax systems it gets taxed at rates similar to ordinary income, sometimes even lumped in with your salary for tax purposes. Long term gains usually get friendlier treatment, which is the whole point of the short versus long distinction.
Can I avoid tax on short term capital gains by not selling?
You avoid the tax event itself, yes, since gains are usually only taxed when you actually sell, called crystallisation. But that also means you're not locking in your profit either, so it becomes a judgement call between tax timing and market timing.
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