There is often some confusion relating to the treatment and operation of capital gains taxes in the case of deceased estates.
Generally speaking, CGT events are considered to take place when an asset changes ownership. In the case of deceased estates, the CGT event is considered to have taken place on the day that the person passed away.
There are special regulations in place that allow capital losses and gains to be disregarded for tax purposes when assets are inherited. However, CGT may become payable when the beneficiary disposes of the inherited asset.
Sometimes, the CGT bill associated with the sale of an inherited property can eat away a large part of the value.
However, by being aware of some specific timing requirements, it may be possible to reduce, or even eliminate, the CGT bill on property inherited through deceased estates. If the deceased person acquired the property before September 20 1985, then it may remain exempt from CGT, but only if it is sold within two years of the date, the person passed away.
If the property is disposed of after this two-year period has passed, it may still be CGT-free provided that it has been the main residence of the beneficiary and has not been used to generate any income.
Unfortunately, if the deceased acquired the property after the introduction of CGT in 1985, there are much stricter conditions that need to be met to avoid CGT when the beneficiary disposes of the property. In addition to the conditions that apply to pre-CGT properties, the property must also have been the main residence of the deceased.
It also must not have been used to generate any income at the time of the death. It is useful to remember that the usual 50% CGT discount can be applied to the sale of inherited properties that have been held for over 12 months.