inheriting a IP through probate

[tj22]

hi all if say you inherit a investment property in sydney, worth 700k (original sale price was 500k) so 200k equity

1. you have to pay CGT when you inherit right, because it's a IP?

2. when it goes through probate can you choose to sell it to a family friend or a friend for the price that it was originally bought for so you don't have to pay CGT? as there is not profit?

thoughts?

 

[SK Investments]

https://www.ato.gov.au/General/Capi...and-deceased-estates/Deceased-estate-and-CGT/

 

[MRO]

1. No. No CGT until you sell.
2. No. All transfers are deemed at market value for tax/cgt

 

[Terry_w]

hi all if say you inherit a investment property in sydney, worth 700k (original sale price was 500k) so 200k equity

1. you have to pay CGT when you inherit right, because it's a IP?

2. when it goes through probate can you choose to sell it to a family friend or a friend for the price that it was originally bought for so you don't have to pay CGT? as there is not profit?

thoughts?

1. It depends
2. It depends - what is the cost base, probably the cost base of the deceased.

 

[Paul@PFI]

hi all if say you inherit a investment property in sydney, worth 700k (original sale price was 500k) so 200k equity

1. you have to pay CGT when you inherit right, because it's a IP?

2. when it goes through probate can you choose to sell it to a family friend or a friend for the price that it was originally bought for so you don't have to pay CGT? as there is not profit?

thoughts?

1. Maybe yes. Maybe no. Inheritance is not a taxing event for a beneficiary. Tax is levied when they sell. There are strategies to defer any tax that may be payable. Typically the executor will seek guidance to determine what the value of the property is on an after tax basis at the date of death so that a fair distribution is made IF one is to be made.

The executor may choose to sell the property. The executor may hand title to one or more beneficiaries.

There are some tax strategies available to executors and deceased estates. ie : Multiple thresholds. Deferral. Time periods for disposal that aren't taxable as such.

2. The executor/s has the choice. Market value is always used (or the executor may be personally liable to any tax shortfall). OSR etc will not accept low ball values anyway.

A good start point for an executor is good tax advice that considers the assets and the beneficiaries.

 

[dan c]

hi all if say you inherit a investment property in sydney, worth 700k (original sale price was 500k) so 200k equity

1. you have to pay CGT when you inherit right, because it's a IP?

2. when it goes through probate can you choose to sell it to a family friend or a friend for the price that it was originally bought for so you don't have to pay CGT? as there is not profit?

thoughts?

1. No. CGT is payable when you sell, not when you inherit from the deceased estate.

2. CGT rules have a 'market value substitution' provision, meaning if you sell in the circumstances you have described, CGT would be levied on the market value of the property on the date of sale. The Capital gain would be market value at date of sale, less cost base.

 

[fernfurn]

So if my kids inherit a fully paid for house from me with tenants in it, they would have to pay cgt if they sold it so each could get their share?

 

[dan c]

So if my kids inherit a fully paid for house from me with tenants in it, they would have to pay cgt if they sold it so each could get their share?

Yes. CGT is payable on sale, so if an income producing asset is sold, CGT is payable (assuming there is a capital gain.)

Cost base would depend on when the asset was purchased.

 

[Terry_w]

So if my kids inherit a fully paid for house from me with tenants in it, they would have to pay cgt if they sold it so each could get their share?

This is why you need a carefully considered will. If you leave a property to A and B then B wants out it would be subject to both CGT and stamp duty. If you had options in the will it could be done without triggering either.

 

[Paul@PFI]

So if my kids inherit a fully paid for house from me with tenants in it, they would have to pay cgt if they sold it so each could get their share?

There is one exception I can think of.

When you dies your kids inherit the associated contingent CGT liability that you already have. CGT is not forgiven on death it is deferred to the new owner/s.

The exception is that a beneficiary cant inherit a pre-CGT asset. A pre-CGT asset owned by the deceased becomes revalued to market value on death.

If the main residence of the deceased is a pre-CGT asset the asset can be sold within 2 years of death and any new CGT profit is ignored. Bonus !

 

[dan c]

The exception is that a beneficiary cant inherit a pre-CGT asset. A pre-CGT asset owned by the deceased becomes revalued to market value on death.

If the main residence of the deceased is a pre-CGT asset the asset can be sold within 2 years of death and any new CGT profit is ignored. Bonus !

Only if it is the main residence at time of death. In Fern's example, a tenanted investment, this exemption wouldn't apply.

 

[Mry]

When you inherit an investment property that was purchased past 19 September 1985 (when CGT was introduced), you inherit it at the deceased's cost base.

If it was a PPOR up to the date of death, or it was purchased by the deceased prior to the 20 Sept 1985, you inherit it at the market value at the date of death.