Inheriting Real Estate from a Deceased Estate
Quite often we are asked to give advice on the tax implications of inheriting a property or other assets from a deceased estate. Recipients or ‘beneficiaries’ are often cautious as to the associated tax liability and rightly so.
While cash and some types of financial assets are tax free in the hands of the beneficiary, the rules determining the treatment of real estate are not always so simple.
Inheriting the property
Generally, there is no tax effect for a beneficiary at the point in time they receive real estate from a deceased. There are some exemptions but these do not apply to resident individuals. The beneficiary is taken to have acquired the real estate at the date of the deceased’s death. The beneficiary will then hold the property (either vacant or rented) or dispose of it in due course.
Disposing of the property
The disposing of the real estate is the trigger for any Capital Gains Tax (CGT). Whether a tax liability arises usually depends on the variables below:
- Whether the real estate was acquired by the deceased prior to 20 September 1985
- Whether the real estate was acquired by the deceased on or after 20 September 1985
- What the deceased used the property for. I.e. was it their principal place of residence, did they rent the property to earn income or was there a mix of both
- Whether the property is disposed of by the beneficiary within two years of the deceased’s date of death or after two years.
- Whether the deceased received the real estate from another deceased estate previously.
The rules are complex and the eventual tax liability depends on the unique set of circumstances.
