Capital Gains Tax (CGT) and Deceased Estates

The death of a loved one can be a stressful and difficult time, including when it comes to matters involving their Will and estate. When someone passes away, a wide range of financial considerations can arise. From funeral expenses and insurance policies to the tax implications around inherited assets, the associated complexities are most unwelcome at what is already a particularly stressful time.
If you are the beneficiary of a property (meaning the property passes to your ownership) as part of a deceased estate, you may be wondering whether you will need to pay CGT on the home.

What is CGT?

CGT is the tax you pay on “capital gains” arising from the disposition of most assets acquired on or after 20 September 1985.
Since CGT is a component of your income tax included in your annual tax return, the applicable tax rate depends on the extent of your other income.

CGT and Deceased Estate

When a person dies an asset in their estate can pass:

• directly to beneficiaries known as people entitled to the assets of the deceased estate;
• directly to their legal personal representative such as their executor or an administrator appointed to wind up the estate; and
• from a legal personal representative to a beneficiary.

If you are a beneficiary or legal personal representative, you acquire the asset on the day the person died. Generally CGT does not apply when you inherit an asset. However, it may apply when you later sell or otherwise dispose of the asset.

CGT Exemptions

In general, no capital gains or losses occur in relation to the sale of an individual’s main residence. This full exemption generally extends to the deceased estate, provided that:

Condition 1

You dispose of your ownership interest within two years of the person's death. What this means is that the dwelling is sold under a contract and settlement occurs within 2 years of the date of death.

Condition 2

From the deceased's death until you dispose of your ownership interest, the dwelling is not used to produce income and is the main residence of one or more of:

• a person who was the spouse of the deceased immediately before the deceased's death (but not a spouse who was permanently separated from the deceased);
• an individual who had a right to occupy the dwelling under the deceased's Will; and
• you, as a beneficiary, if you dispose of the dwelling as a beneficiary.

If you would like to know more about CGT and the deceased estate including your rights and options, Straits Lawyers are now offering online services in both English and Chinese.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.