Inherited property often brings Capital Gains Tax (CGT) into play, and the tax outcome depends on what type of property it is and how it is handled after death. There are several strategies to help reduce or even avoid CGT.
Is Capital Gains Tax Payable on Main Residence?
If the deceased’s primary place of residence is sold within two years of death, a full CGT exemption may apply. This allows families time to grieve and administer the estate without an immediate tax burden.
Capital Gains Tax on Inherited Investment Property
When sold by the beneficiary, CGT applies. The cost base for CGT purposes depends on whether the property was a pre-CGT or post-CGT asset.
- If the property was acquired before 20 September 1985, the cost base resets to the market value at the date of death. This can significantly reduce CGT when sold.
- If the property was acquired by the deceased on or after 20 September 1985, the beneficiary generally inherits the deceased’s cost base.
Every estate is different, and outcomes depend on timing, use of the asset (was it rented or vacant for e.g), and its ownership structure.
Shares can pose similar challenges when inherited, so it’s important to understand the CGT rules that apply to calculate tax on inherited shares .
Access to the 50% CGT Discount
If you sell an inherited investment property at least 12 months after it was first acquired, you may be eligible for the 50% CGT discount.
- For pre-CGT assets, the acquisition date is the date of death.
- For post-CGT assets, the acquisition date is the deceased’s purchase date. This rule applies to most individuals and trusts.
Need Support With Wealth Transfer, Inheritance and Tax Planning?
At BlueRock, we understand how complex the tax and legal aspects of inherited property, or any aspect of inheritance, can be. Our advisors are here to help your family navigate estate administration, CGT, and inheritance planning. Contact us via the form below for personalised advice tailored to your situation.
Disclaimer:
The content is intended as general information only and should not be considered as advice on any matter and should not be relied upon as such. This has been prepared without taking into account any individual objectives, financial situation or needs. You should therefore consider the appropriateness of the information in regard to these factors before acting or seek advice before making any financial decisions. Blue Rock Investments (Melb) Pty Ltd is the holder of an Australian Financial Services Licence (AFSL No: 335588).
