Because of the relentless increase in property prices, many prospective home buyers could be excused for thinking that the only way they could own a home is through inheritance.
What occurs when you find out you’ve inherited property.
In Australia, unlike in other countries, there are no death duties or inheritance tax. However, it does not mean that the taxman will just simply allow you to have the property. Wills and inheritance are covered by state and territory laws, but they may also be subject to federal taxes and regulations. Capital gains tax (CGT) is the primary one.
The rules on CGT as it applies to inherited property vary significantly and are dependent on several factors:
- How you are related to the individual from whom you inherited the property
- When they died
- What the property was used for – for instance, whether the property was the person’s residence or if you’re a co-owner of the property.
Viability of owning the property
Before making any decision, make sure to find out the value of the property you’ve inherited:
- Get the property valued by a professional; it wouldn’t hurt to also have a building survey done on the property, or a strata survey, if the property is some type of common title like an apartment.
- Instruct your accountant to familiarise you with the tax implications and go over how taking ownership of the property would impact your financial situation.
- Adopt a tactical, long-term outlook of the property and if you are able to fund its maintenance. Certain short-term expenses may actually put you in good financial position in the long run.
- Be level headed, especially if the person who left the property to you is close to you, such as a partner or a parent. The sense of obligation to keep the property may be strong, regardless of the financial cost to you. However, try to remove your emotional connection to the property and be objective when viewing it.
You are not obligated to keep your inherited property. You have options: either sell it promptly as a deceased estate, or make it a renovation project (and possibly make a profit from selling it after renovations are done).
In case the property was the dead’s person’s main place of residence, you don’t need to pay any tax from selling it, if you’re able to sell it within two years from the date you inherited it.
You can also rent out the property. This option would earn you an income, or at least allow you to use the rent to fund the upkeep of the property.
Of course, you don’t have to do either of those things and just decline the inheritance. This is not common, but it absolves you of the obligation and expenses of becoming the owner of the property.
You don’t need to fear inheriting a property. Just don’t forget to factor in all implications of taking ownership and maintain records of the inherited property to reduce your tax obligations.
Inheriting a property comes with different tax and legal obligations. Aside from consulting with your lawyer, be sure by talk to your accountant to discuss the tax and financial side of things.
PJS Accountants, chartered accountants, offer a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning, estate planning and bookkeeping. Contact PJS Accountants for enquiries.