Inheriting assets and what is the correct CGT treatment?

When a person dies, there are a number of ways that the estate can treat the deceased person’s Assets for Tax purposes.

Many taxpayers don’t realise that when they receive an asset from their long lost auntie, they may have to pay Capital Gains Tax when they eventually sell it and are in for a big surprise.

Basically, the asset is inherited by you along with any CGT liability.  Typically we are talking assets such as Houses, holiday houses and shares.

Lets look at an example

As an example in a deceased asset windup if  Bill inherits the family home and his brother inherits the shares for the same value there are tax implications . Bill may be at an advanatage  from his brother who may have a tax liability whereas Bill may inherit a cost base of the market value at the date of death.

Alternatively, should the executor of the estate sell the property  and or shares and then distribute the cash,  the estate will pay the tax. Rather than transferring it to a beneficiary.

Each circumstances are different and each strategy needs to be considered carefully to achieve the right outcome.

So when the estate transfers the property to the beneficiary as is, there maybe CGT is payable by the beneficiary. This occurs  only when they eventually decide to sell the share or property.

For Pre cgt shares this will mean that while there are no capital gains, the beneficiary will derive a new  cost base at the market value at the date of death whereas the post cgt assets the beneficiary will include the cost base that the deceased initially paid for the shares.

Things to note:

The principal residence of the deceased person does not attract CGT if sold within two years of their death.

No tax on cash inheritances and remember this advice is of a general nature and professional advice should be obtained before acting.

Best of all we can be thankful that Granny or Auntie Mable has left us something that we can enjoy but also be aware that with it come tax implications.


06Dec 2018

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