Avoiding Capital Gains Tax on Inherited Property
Another time when the capital gains tax comes into play is when an individual inherits property. Often, the individual who inherits the property does not want to deal with the burden of keeping it. The good news is that if the individual chooses to sell the home immediately, they may not find themselves subject to the capital gains tax.
The deceased’s estate does not have to pay CGT on any property or assets not sold before they passed away. The government considers these to be unrealised gains but does not require inheritors to pay a CGT. However, if the value of the property increases after the person dies, then an individual will need to pay CGT when sold during probate.
The capital gains tax is not on the final sale price minus the initial buying price. Instead, the government estimates the CGT based upon how much the value of the home increased after the person passed away. Those who inherit property do so at the probate value. The government only holds them liable to pay CGT on the increase in probate value.
So, if an inheritor knows that they do not want to keep the inherited property, they should sell it during probate. The increase in value that occurs during probate is minimal if any at all. Selling the property during probate is an excellent way to avoid capital gains tax on inherited property, considering that the government waives previous CGT as unrealised gains.