Capital gains tax (CGT) does not apply when a property is inherited if, when the former owner dies, the property passes:
· to the deceased's legal personal representative - such as the executor of the estate,
· to a beneficiary - that is, a person entitled to the deceased's property, such as next of kin or a person named in the deceased's will, or
· from the deceased's legal personal representative to a beneficiary.
A beneficiary is a person entitled to assets of a deceased estate. They can be named as a beneficiary in a will or they can be entitled to the assets as a result of the laws of intestacy (when the person does not make a will).
A legal personal representative can be either:
o the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will), or
o an administrator appointed to wind up the estate if the person does not leave a will.
Selling or otherwise disposing a dwelling you have inherited.
Though there are usually no capital gains tax implications at the time you inherit a dwelling, capital gains tax may apply when you subsequently sell or otherwise dispose of the dwelling.
CGT may apply in the following circumstance:
· The property was being used by the deceased to produce income, such as a rental property.
CGT will not apply, and will be disregarded in the following circumstances:
· The dwelling is disposed of within two years of the person’s death AND just before the deceased died, it was their main residence and was not being used to produce income by the deceased.
· From the deceased's death until you disposed of the dwelling, it was not used to produce income AND was the main residence of one or more of:
o a person who was the spouse of the deceased immediately before the deceased's death,
o an individual who had a right to occupy the home under the deceased's will, or
o you, as a beneficiary, if you disposed of the dwelling as a beneficiary.
Unapplied net capital losses
If the deceased had any unapplied net capital losses when they died, these cannot be passed on to you, as the beneficiary or legal personal representative, for you to offset against any net capital gains.
Acquisition date and cost base you inherit
If you inherit a dwelling owned by a deceased person as their legal personal representative or beneficiary, you are taken to have acquired the asset on the day the person died. This is the date that would be used in the CGT records on disposal of the inherited dwelling.
The purchase cost or cost base of the dwelling is taken to be the cost recorded in the purchase contract when the deceased person acquired the dwelling. This means a market valuation does not need to be done to value the property as at the date of death unless the property was acquired before 20 September 1985.