When someone dies, a capital gain or loss is generally disregarded 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; or
• from the deceased person’s legal personal representative to a beneficiary.

This exception doesn’t apply if the property passes from the deceased to a tax-advantaged entity, such as a charity or a foreign resident.

If you inherit a dwelling or other property after capital gains tax (CGT) started on 20 September 1985 and later sell or otherwise dispose of it, capital gains tax may then apply.

Similarly, capital gains tax may apply if the deceased person’s legal personal representative sells a property as part of winding up their estate.

You may be exempt from capital gains tax depending on:

• When the deceased acquired the property
• When they died; and
• whether the property has been used to produce income, such as rent.

If you are not exempt, or only partly exempt, you need to know the cost base of the dwelling to work out your capital gain. The cost base may be the value of the dwelling when the deceased acquired it or the value when they died, depending on the circumstances above.

The same exemptions apply if a CGT event happens to a deceased estate of which you are the trustee.

These rules do not apply to land or a structure you sell separately from the dwelling – they are subject to CGT.

If you have more questions about inheriting property and whether you are exempt from capital gains tax or not, get in touch with us here at IP Tax and speak to an investment property tax expert about your situation.