Tax on Inheritance

Hi there,

If a child inherit's their parents' PPOR, do they have to pay any tax upon receiving this inheritance?

Presumably the asset gets transferred to the child's name at this time?

What if the child then decides to sell this property straight away, is there any CGT on sale?

What if they live in it before selling it, is there any CGT on sale?

And what if they rent it out for a couple of years before selling it, is there any CGT on sale?

Thanks,

JIT
 
Hi there,

If a child inherit's their parents' PPOR, do they have to pay any tax upon receiving this inheritance?

Presumably the asset gets transferred to the child's name at this time?

What if the child then decides to sell this property straight away, is there any CGT on sale?

What if they live in it before selling it, is there any CGT on sale?

And what if they rent it out for a couple of years before selling it, is there any CGT on sale?

Thanks,

JIT

Hi Jit,

Not entirely sure, but thought there was a grace period of up to 2 yrs to sell, afterwhich there is tax payable.

Regards Jason.
 
There would be no tax upon receiving the inheritance

I believe there is a 2 year period from the date of death that no CGT would be applied when sold (provided it was the ppor or falls under the "Continuing main residence status"). After this CGT would be calculated using the market value of the property from the date of death.

I am pretty sure if the child chose to live in the house for a few years before selling normal ppor rules would apply.
 
So long as the property has ALWAYS been the PPOR of the parents until their death, and so long as it becomes and remains the PPOR of the beneficiary it will remain free of CGT.

Things get murky if it has been rented at any stage.
Marg
 
My Understanding is that there is no inheritance tax in Australia and that the transfer of the property to the transferree would be stamp duty exempt. There would be no CGT on the subsequent sale if the property was the main residence before and after it was transferred. If it was a rental property then there may be CGT depending on the circumstances.
 
If it was a rental property then there may be CGT depending on the circumstances.

My understanding is if you have a testamentary trust, that transfers rental properties to your kids, CGT is only payable when and if they sell them.

I think also that the properties have to be valued at the time the kids take possession, as this is the starting date for CGT.
 
Yep, CGT would only be payable on the sale - with a testamentary or without.

Not sure of the cost base though.
 
Thanks for the clarifications.

I think also that the properties have to be valued at the time the kids take possession, as this is the starting date for CGT.

With the above scenario of inheriting rental properties...

Do you mean the kids pay CGT on the difference between the valuation when they inherit the property and the eventual the sale price?

What about the capital gain the parents had up until the time they passed away?

Isn't this taxed?
 
With the above scenario of inheriting rental properties...

Do you mean the kids pay CGT on the difference between the valuation when they inherit the property and the eventual the sale price?
Yes that's how it was explained when we set up the testamentary trust, there is no CGT when we die/kids inherit, only when they sell.
What about the capital gain the parents had up until the time they passed away?

The CGT is payable on sale, not death, the testamentary trust seems to overcome this problem. Our kids have testamentary trusts, and this could allow them to transfer after death to their kids/our grand kids without paying CGT.

However, having set this up to the best of our ability, there is no guarantee the rules won't change in the future.
 
Testamentary trusts are excellent vehicles.

Remember they are trusts, so the beneficiaries don't own the assets so no passing on occurs. Your children can pass control of the trust down the line.
And because they are discretionary trusts there is great asset protection if the beneficiaries are sued, or maybe even if they divorce etc. This is a great benefit as you never know who your kids will marry.

And also children beneficiaries can receive income from the trust and are taxed on this at the same rates as adults. ie the income tax free thresholds.

One last thing, the trust can buy more assets after it is in operation.
 
If a child inherit's their parents' PPOR, do they have to pay any tax upon receiving this inheritance?

No.

Presumably the asset gets transferred to the child's name at this time?

Usually.

What if the child then decides to sell this property straight away, is there any CGT on sale?

Probably not.

What if they live in it before selling it, is there any CGT on sale?

Probably not.

And what if they rent it out for a couple of years before selling it, is there any CGT on sale?

Probably.


Hi, these things can be circumstantial. Other factors may influence the answers but that should be a reasonable guide for you.
 
Hi JT, assuming the property has been a PPOR there will be no tax on the inheritance.

If the child then sells the property straight away tax is NIL. No CGT is applicable.

If the child were to live in the property before selling it no CGT would be applicable.

If the child rented it it out for a couple of years before selling it then CGT would be applicable. The cost base for CGT purposes would be the value of the property at the date of death of the parents.

I am assuming that there is no testamentary trust in place.
 
Exactly as Intellikev said. It shouldn't be any different if inherited and transferred into a trust.

Tarah
 
My understanding is if you have a testamentary trust, that transfers rental properties to your kids, CGT is only payable when and if they sell them.

.

Hi Battler,

As I understand it, the testamentary trust is written as part of a will and comes into effect upon death - is that correct?

Regards Jason.
 
As I understand it, the testamentary trust is written as part of a will and comes into effect upon death - is that correct?
I can't remember if it's actually part of the will, or a secondary document that's in place and takes affect upon death.

The danger as I see it is, if you left a stack of mortgaged properties to your kids and they were unable to finance them, and they had to be sold, then this would trigger CGT
 
I can't remember if it's actually part of the will, or a secondary document that's in place and takes affect upon death.

I set up my will so that the assets pass to a testamentary trust upon death. (The trust comes into effect upon death). I am assured by the lawyer that no capital gains tax will be payable unless the assets are sold. The document is very simple and is just part of the will. Simply states the assets are to be held on trust for.... (Hope this is correct - does this sound right anyone??)

The danger as I see it is, if you left a stack of mortgaged properties to your kids and they were unable to finance them, and they had to be sold, then this would trigger CGT

Exactly - this is why we have life insurance that covers the amount of our mortgages.

Regards Jason.
 
(Hope this is correct - does this sound right anyone??)

Yes it sounds correct, a lot of things change upon death ( apart from the fact that you're no longer answering the phone), the power of attorney stops and trusts and executors start.
 
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