Property Inheritance – CGT Implications
Since the introduction of capital gains tax in September 1985 if you inherit a dwelling or other property and later sell or otherwise dispose of it, capital gains tax may apply to either the deceased estate or yourself as beneficiary.
Inheriting a property
When someone dies, in the first instance a capital gain or loss is generally disregarded at the point when a property passes:
- to the deceased person's executor or other legal personal representative
- to the deceased person's beneficiary –- such as next of kin or a person named in the will
- from the deceased person's legal personal representative to a beneficiary
These provisions only apply, however, as long as the property doesn’t pass from the deceased to a tax-advantaged entity (such as a charity) or foreign resident.
Inheriting a home
If you inherit a deceased person's dwelling, you may be exempt or partially exempt when a capital gains tax (CGT) event happens to it, for example: sell it. The same exemptions apply if a CGT event happens to a deceased estate of which you are the trustee.
The degree to which CGT applies depends on:
- when the deceased person acquired the property. That is, did the deceased acquire the property before or after 20th September 1985?
- when they died?
- whether the property has been used for income-producing purposes?
These exemptions do not apply to land or a structure you sell separately from the dwelling as they are not considered to be part of the home and is they are subject to CGT.
In part 2 of this article we will look at specific provisions applying to the disposal of a deceased principle residence
If you have any questions or require assistance with a deceased estate please contact Paris Financial on 03 8393 1000.
Steve Wildes, Partner, Paris Financial