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 your grandmother used the property as her principal place of residence and she purchased it after 19 September 1985, then there are no tax consequences. You simply inherit the property, and for tax purposes you also inherit her cost base for it at the price she first purchased it for.

When you eventually sell it you need to figure out if how much of the gain is free from Capital Gains Tax (CGT), 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 principal place of residence and bought before 19 September 1985, then the impact similar. You 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 CGT which is dependent on how long you used it as your home.

If the property was used by her as her principal 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 September 1985, then there are no tax consequences. You simply inherit her cost base for it. When you eventually sell it you need to pay CGT.

If the property was an investment property and bought before 19 September 1985, 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.

Our mortgage brokers are experts in helping people to finance a property that they have inherited. Please call us on 1300 889 743 or enquire online.


Speak to an accountant

This information is general 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.

  • Keira

    Do I have to pay tax for inheriting my parents property? If I have to, can I take a loan for that since it’s a big property and I don’t have enough cash.

  • Hey Keira, yes, you’ll have to pay tax and yes, you can get a loan to pay it.

  • Enoch

    I’d like to buy out the other beneficiaries with the help of a mortgage but I don’t have genuine savings. Can I use a gift or maybe rent?

  • Hi Enoch,

    You won’t be able to use a gift as genuine savings, however, it may be counted if it’s added to you savings and held over 3 months in a bank account. If you want to use rent then you must have a minimum of a 3-month rental history and also have to meet additional criteria.

  • Jerry

    I want to borrow to complete the inheritance but don’t have genuine savings. Will I be able to borrow using equity in an existing house though?

  • Hey Jerry, the policy regarding using equity in real estate in place of genuine savings varies from lender to lender but it can be done. There are also other ways to borrow without genuine savings, which you can learn about on our no genuine savings loans page:
    http://www.homeloanexperts.com.au/genuine-savings/no-genuine-savings-loans/

  • Dean

    Hi, is it possible for me to use the inheritance that I will receive soon to help me complete the deposit for a home loan?

  • Hi Dean,
    Yes, you can use inheritance as a deposit on a home loan. Please check out the inheritance as a deposit page to find out the requirements, how much you can borrow and whether or not you still need to show genuine savings. Here’s the link to the page:
    https://www.homeloanexperts.com.au/genuine-savings/inheritance-as-a-deposit/

  • mooney

    I may be buying a property overseas and using my inheritance to help me. Can you tell me if I require ATO permission to buy overseas property?

  • Hello mooney,

    You don’t need to inform the Australian Taxation Office (ATO) that you’re buying property overseas but you need to disclose that you did so in your next tax return. This disclosure will cover things like the rental income you earned and your expenses as well as any capital gains tax (CGT) gains or losses. When you take into account the double tax agreements (DTA) in place with Australia and a number of different nations and the powers that the ATO has to track and punish tax-dodgers, it’s recommended you be honest to avoid huge fines.