Property inheritance in Australia is such a rewarding experience for individuals; however, it’s always accompanied by its tax implications. Many can look for ways to avoid or reduce these taxes instead.
How to avoid paying taxes on inherited property in Australia
If you live in Australia, then you must have known or encountered the rule that you are not required to pay inheritance tax on inherited assets. However, there are a few taxes and considerations that could apply in that case, i.e., the capital gains tax (CGT) and stamp duty.
1. Capital Gains Tax (CGT) on inherited property
If you plan to sell an inherited property, a capital gain tax will be imposed.
Inherited property that was the deceased’s primary residence may be exempt from Capital Gains Tax (CGT) if sold within two years of the death. Still, CGT may apply to any capital gain if it’s sold after two years or if it wasn’t the deceased’s main residence.
2. Take advantage of the CGT main residence exemption.
The exemption that comes with inheriting property from a deceased person states you may claim an exemption from CGT while selling the property.
The exemption only applies if the inherited property was never used for investment purposes and you lived in it as your primary residence after inheriting it.
However, the case would be different, and you would be required to pay tax if the inherited property was used for business or rented out.
3. Consider a family trust for future inheritance planning.
A family trust can offer flexibility in distributing income generated by inherited property among beneficiaries, which may result in tax advantages depending on the beneficiaries’ tax situations. However, this is not guaranteed, and careful planning and professional advice are required.
4. Gifts, donations and bequests
Consider giving gifts, donations, and bequests to reduce inherited property taxes.
The reason behind this is that the tax implications accompanied by gifts and bequests made to charities can help reduce one’s overall tax burden.
Making donations to registered charities may significantly reduce the overall value of your estate, lowering the beneficiaries’ CGT liability.
5. Review state-specific stamp duty rules.
Stamp duty tax is one thing that most people should consider if they are inheriting properties.
This is because stamp duty is heavily involved in matters dealing with the transfer of property ownership; hence, it is typically involved when a property is bought or transferred.
Most of the time, people need to check whether they are liable for stamp duty exemptions and whether concessions are available when inheriting a family property.
6. Defer CGT by holding the property in a trust.
If you are a trustee of an estate, one thing you need to be sure of is your ability to defer CGT until the inherited property is sold or distributed.
Holding the inherited property in a trust will save you from costs related to direct sales or transfers of assets, thus deferring tax obligations.
However, this strategy is typically recommended for those who inherit larger estates and want to minimize CGT in the long term.
7. Speak to a tax advisor or estate planner.
When dealing with inherited properties, getting advice from a registered tax advisor or accountant should also be a top priority.
This is because, through professionals, you can easily be guided through the complex landscapes of CGT, stamp duty and estate planning at once.
You can also get different advantages from proper knowledge of all available exemptions and strategies.
Conclusion
Beneficiaries should make the smart move of devising strategies to help them minimize taxes accompanied by inherited property in Australia.
You can reduce some of these tax burdens by taking advantage of things like the CGT main residence exemption, family trusts, and tax deductions. If you need tax advice, contact us for support.
