Inheriting a property isn’t always an easy process. Most Australians are unsure of the actual implications of inheriting a property.
There are a number of tax issues to consider when inheriting a property. The large contributor to cause implications is capital gains tax (CGT). Assessing your tax obligations is dependent on how the property was used prior to the decease passing away and what it will be used for when you inherent the property.
In this edition of market insights we take the opportunity to share some general factual information that will help you determine what you need to consider. As these tax issues can vary between circumstances, we suggest you act on this as soon as possible. We recommend seeking advice from a qualified tax agent or accountant. Accountant’s up to date with tax law, they can take your personal circumstances into consideration too.
Inheriting a property – principal place of residence
In the event you inherited a residential property from a family member and the deceased person occupied the home as their principal place of residence and purchased it BEFORE 19 September 1985, then there are no tax consequences. You inherit the property at the original cost base that the deceased purchased it and you take possession of the home. If you don’t want to live in the inherited property, you have two years from the date of the deceased to sell it without incurring any CGT.
In the event you inherited a residential property from a family member and the deceased person occupied the home as their principal place of residence and purchased it AFTER 19 September 1985, then there are also no tax consequences. You inherit the property at the original cost base that the deceased purchased it and you take possession of the home. When selling the property in the future you may incur CGT, but this is dependent on how long you used it as your own home.
Inheriting a property – investment property
In the event you inherited a residential investment property from a family member who purchased it AFTER 19 September 1985, then there are no tax consequences. You inherit the property at the original cost base that the deceased purchased it and you take possession of the home. When you sell the property in the future, you need to pay CGT on the increased capital.
In the event you inherited a residential investment property from a family member who purchased it BEFORE 19 September 1985, then again, there are no tax consequences. In this case, you inherent the property a cost base equal to the market value of the property at the date of death. When you eventually sell it you need to pay Capital Gains Tax.
Inheriting a property with others
What happens if you inherit half of the property? Lets look at this example, where you and your brother receive 50% each of a house. Both of the beneficiaries will have different circumstances and objectives. If your brother decided to sell his 50% share of the property, but you want to keep the property, you will obviously need to pay him out. If you don’t have the excess cash or equity to pay him out, you can apply for a mortgage to buy the remaining 50%. In order to ensure this is done lawfully, you should seek advice from a solicitor who can document the transaction.
In many cases, you may be excited to inherent a property, but you may not be able to obtain finance or afford the repayments to pay your brother out. Before committing to this decision, you should seek lending advice from a qualified finance broker. If you are unable to buy your brother out then you’ll need to review other alternatives, such as selling it, agreeing to rent it out together or coming to an agreement to buy their half out.
The Australian Taxation Office has some detailed information relating to inheriting a property too. In addition, we strongly recommend discussing these matters with a qualified accountant before implementing any financial decisions.
Not only does advice help you make the best possible financial decision, having their support will also help mediate joint parties if they are inheriting a property together. In this case having a professional will help reduce any potential conflict between siblings. The more facts you know, the better you’ll deal with each other in time of loss.
Property ownership
There are many ways of owning property. Some have greater tax benefits and better asset protection while others work better through estate planning. If you are concerned that in the future your siblings may draw conflict over inheriting a property you leave behind for them, we recommend seeking advice in advance. This will help your siblings manage the complexities of money while dealing with the emotional loss of their parent(s).
As property adviser, undoubtedly no purchase is ever the same. We have great experience in helping you achieve your goals and welcome your call. If you want to talk to someone at Crest Property Investments please contact us at your earliest convenience.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more, please contact us. We welcome the opportunity to assist you.
Aug 2019
