Capital gain tax on inherited property

There is often some confusion relating to the treatment and operation of capital gains taxes in the case of deceased estates.

Generally speaking, CGT events are considered to take place when an asset changes ownership.  In the case of deceased estates, the CGT event is considered to have taken place on the day that the person passed away.

There are special regulations in place that allow capital losses and gains to be disregarded for tax purposes when assets are inherited.  However, CGT may become payable when the beneficiary disposes of the inherited asset.

In some cases, the CGT bill associated with the sale of an inherited property can eat away a large part of the assets’ value.  However, by being aware of some specific timing requirements, it may be possible to reduce or even eliminate the CGT bill on property inherited through deceased estates.

If the deceased person acquired the property prior to 20 September 1985, it may remain exempt from CGT but only if it is sold within two years of the date the person passed away.  If the property is sold after this two year period has passed, it may still be free of CGT provided that it has been the main residence of the beneficiary and has not been used to generate any income.

Unfortunately, if the deceased acquired the property after 20 September 1985, there are much stricter conditions that need to be met in order to avoid CGT when the beneficiary disposes of the property.

It is useful to remember that the usual 50% CGT discounts can be applied to the sale of inherited properties that have been held for more than twelve months.