Inheriting a property

There are tax issues to consider when inheriting a property. The tax outcomes hinge on what the property was used for and what it will be used for.

Take a residential property owned by your grandmother who has now passed away. The executor of her estate will transfer this property to you as per the will. What happens next?

If the property was used by her as her principle place of residence and bought after 19/09/85 then there are no tax consequences. You simply inherit the property and for tax purposed you also inherit her cost base for it.

When you eventually sell it you need to figure out if how much of the gain is free from capital gains tax, which is dependent on how long you used it as your home.

What about properties purchased before 1985?

If the property was used by her as her principle place of residence and bought before 19/09/85 then there are no tax consequences. You simply get given a cost base equal to the market value of the property at the date of death.

When you eventually sell it you need to figure out if how much of the gain is free from capital gains tax, which is dependent on how long you used it as your home.

If the property was used by her as her principle place of residence and you don’t want to live in it you have two years from the date of death to sell it and not worry about capital gains tax.

Inheriting an investment property

Consider an investment property (commercial/residential/industrial) owned by your late grandmother. The executor of her estate will transfer this property to you as per the will. What happens next?

If the property was an investment property and bought after 19/09/85 then there are no tax consequences. You simply inherit her cost base for it. When you eventually sell it you need to pay capital gains tax.

If the property was an investment property and bought before 19/09/85 then there are no tax consequences. You simply get given 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.

Borrowing to complete an inheritance

What happens if you inherit a one third share of a property? The other beneficiaries may decide they want to sell, whereas you may decide that you would like to keep the property.

You can apply for a mortgage to buy out the other beneficiaries / owners however if you don’t have a 5% deposit in genuine savings then most of the banks will decline your loan even though you have a significant amount of equity in the property.

The reality is that when an inherited property is received, you may not be ready to take on a new home loan so you may find yourself unable to qualify for a mortgage. Thankfully there are specialist lenders that can accept an application from you even if you have no genuine savings, problems with your employment, no income evidence or even a bad credit history.

Speak to an accountant

This information is general only and has been provided by Lucentor Pty Ltd who are accountants that specialise in tax for property investors. We recommend investors obtain financial advice specific to their situation before making any investment or decision regarding their finances.