CGT on gifted property?

Hi All,
My wife and sister have recently been speaking to their mum about her gifting them the property she plans to leave them in her will. The idea being that she can see them actually enjoy the life such a gift would bring.

The property was purchased after September 1985 and the mother lived in it as her PPOR until about 5 years ago when she moved in with her new husband and has since rented the property out as an IP.

The property was purchased for 120k and is now worth about 650k. My understanding is that if the mother just sold the house herself now she would not be liable for any CGT (If she did not claim her husbands house as her PPOR). If she then gifted them the money from the sale there may be other tax considerations though?

The other scenario is if she gifted them the property now? My understanding is she would not need to pay any CGT on the gift to the kids as per above but what if they then immediately sold the property? Does the CGT PPOR exemption pass onto the kids with the gift OR does the clock basically re-set and the kids would be liable for the CGT on the 530k (650 sale - 120 purchase)?
 
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Also just further to this what would happen in the event that the property did stay in the will and the kids received it as a deceased estate in say 20 years.

Let us say in 20 years it was worth 1.2million and the kids then sold it immediately. Would they then be liable for 1mil CGT or are they exempt because they are selling a deceased estate?
 
Kids would receive gifft without direct tax consequences now and went sold the cost base would be market value at date they became owners. So probably little tax for the kids.

Indirect tax consequences include deducting interest - if it was a gift any loans they get to pay mum out etc would not be deductible.

Other consequences
Social securiity
asset protection on death, divorce and bankruptcy of both mum and recipents
etc
 
The property was purchased after September 1985 and the mother lived in it as her PPOR until about 5 years ago when she moved in with her new husband and has since rented the property out as an IP.

The property was purchased for 120k and is now worth about 650k. My understanding is that if the mother just sold the house herself now she would not be liable for any CGT (If she did not claim her husbands house as her PPOR). If she then gifted them the money from the sale there may be other tax considerations though?

For the property to be covered wholly by the PPOR exemption I think she and her husband would both have to elect to treat the property as the PPOR (which means the husband's property loses its exemption), otherwise half the property could be exempted. What was the value when the property was first rented out?

Ages have not been mentioned but there might be Centrelink issues if either the mother or her husband is on a benefit or would be looking to go onto one within 5 years of the gift.
 
Kids would receive gifft without direct tax consequences now and when sold the cost base would be market value at date they became owners. So probably little tax for the kids.

Indirect tax consequences include deducting interest - if it was a gift any loans they get to pay mum out etc would not be deductible.

Other consequences
Social securiity
asset protection on death, divorce and bankruptcy of both mum and recipents
etc


-Stamp duty is a direct tax consequence now. No duty through the will. Kids would inherit a cost base of mum's original cost if its through will. This way they inherit at market value as mums sale is CGT exempt. The CGT triggers a refreshed cost base at market value. This strategy may reduce CGT overall. However the MR exemption issue for her new husband must be considered too.
- Centrelink gifting rules will affect Mum for 5 years. Centrelink will apply deeming rules to the gifted amount (less $10k per year over three years) and both income and assets test will be affected.
- Aged Care - See above rules for gifting.
- Mum should consider what may happen if one of the kids borrows against the prop or is a gambler etc...She may lose her roof if her marriage was to dissolve. Effect of her gifting now may cloud her marital entitlements too.
 
HI,

Does the Will specifically have to say 'Gift' or could it just say all assets (Properties and cash) are to be passed on to your child.

Sorry wanna get this right so the beneficiary does not end up having to pay any duty, tax or CGT.

Rgds
 
Also Terry,

What do you mean with "asset protection on death" ?
Do you need to do anything specific is the scenario where the PPOR of the parent is fully paid off.

Rgds
 
HI,

Does the Will specifically have to say 'Gift' or could it just say all assets (Properties and cash) are to be passed on to your child.

Sorry wanna get this right so the beneficiary does not end up having to pay any duty, tax or CGT.

Rgds

Where a person dies and their will leaves assets etc as an estate entitlement this is referred to as a gift.

A beneficiary may be taxed on an estate gift. The CGT rules determine what the cost base is that transfers along with the asset. Simple rules are these:
1. Pre-cgt transfers at market value on death; OR
2. Post-CGT transfers at owners cost base.
There are exceptions and tax advice will be important before making the will to see what works best. Simple assets like personal effects aren't covered by CGT anyway. Property assets incl home, shares and managed funds are. May even include a aged care property.

If estate is wound up by executor and sold the estate proceeds paid in cash and no CGT liabilities. The executor will file the tax return and distribute cash. If the assets are distributed (maybe some cash some property etc) the executor should determine the estate nett of tax and apportion that way or one beneficiary will inherit no liability and another gets 50% with a tax issue.

Before an estate is wound up tax advice should be obtained. Planning to mimimise tax counts. There is also a case when tax advice BEFORE death counts....If a taxpayer has a large accumulated capital loss it may be prudent to trigger CGT before death to use this up.
 
Also Terry,

What do you mean with "asset protection on death" ?
Do you need to do anything specific is the scenario where the PPOR of the parent is fully paid off.

Rgds

I saw that and thought of her new husband. He may lose an entitlement to her IP which would otherwise pass to him. Mum's gift may protect her children's entitlements from passing to him and being dealt with by his will when he dies. His will could leave zero to her kids and his kids get mum's IP value. Mum's kids could get zero as a consequence.

Mum could leave her IP on testamentary trust too. That way her kids don't own it either :) That strategy may assist if one of her kids was a gambler, druggie, married to a tosser etc. A TT will can give asset protection on death. It means the kids inherit nothing except a right to the trust income etc.
 
Hey Terry and Paul,
Thank you for the detailed responses! Like always with property it all becomes a bit confusing which is why left best to the experts. :confused:

From what I can gather from your responses though whether the property is a gift or a deceased estate then the CGT is not the biggest consideration as it would be quite negligible. Or again am i way of the mark! haha
 
Hey Terry and Paul,
Thank you for the detailed responses! Like always with property it all becomes a bit confusing which is why left best to the experts. :confused:

From what I can gather from your responses though whether the property is a gift or a deceased estate then the CGT is not the biggest consideration as it would be quite negligible. Or again am i way of the mark! haha

I don't think Paul and Terry have said that. Instead they have said there are a number of aspects that need to be considered in order to consider whether a gift by your mother in her lifetime is the best option.

If your mother makes a gift then it is a disposition of property and CGT, If any, will be payable.

If your mother leaves the property in her will no CGT is payable until a beneficiary disposes of the property and in that case the cost base to the beneficiary as it is a post 1985 asset is your mother's cost base.
 
asset protection on death - various issues can arise such as :

no will = intestacy rules apply
in valid will = intestacy rules
Family provision = someone left out of a will getting awarded something out off the estate
estoppel claims = someone you have promised to leave property to making a claim because you didn't

All these things become more complicated when there are blended families involved.

I have seen someone with children from a previous marriage plan on leaving property to the new spouse and then the new spouse leaving it to the children of the first marriage. But upon death the new spouse quckly selling the property and remarrying and running off with the money with the kids mssing out.

Also consider a different aspect. X dies leaving property to Y. Y then loses it because Y is:
- addicted (drugs, alcohol, fast cars, girls, boys etc)
- gambler
- risky business person
- family law divorce and separation
- incapacitated and they attorney steals it, blows it, wastes it.
 
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