CGT on already inherited property

CGT question on inherited property, any suggested very welcome
If my wife receives a house (purchased post Sept 1985) as an inheritance (the property is the one we live in but pay rent to the owner for), I understand my wife would pay no CGT on this as an inheritance transaction of itself, BUT
If my wife then leaves this property to our own children, is the CGT cost base of the asset to our children the market value of the property at the time of my wifes’s death, or is the cost base the much lower one, ie that price which was paid for the property in the late 80s by the person my wife inherits it from? Thanks

 

Is it the main residence of the person as of their death? If so the cost base will generally be reset to the value as of their death as long as not income producing at that time.

If your wife disposes of it then CGT will be triggered unless the main residence exemption can apply for her period of ownership.

If it is pass on after her death if it is her main residence as her death, and is not income producing, then the cost base would generally be reset to market value as of the date of her death. Your kids could then potentially sell it within 2 years of her death and pay no CGT.

 

If you rent from your parents and you then inherit that house you have inherited a rental property. So the cost base is what your parents paid to purchase, improve and hold the property.

if you then make it your main residence you will enjoy a tax free portion when you sell it. The tax free portion is pro rated over time compared to the time it was rented to you.

If you bequeathe the property to your kids the tax profile of the home passes onto your kids.

 

Ah its rented. So the cost base will be the cost base of the parents. But if it is it your wife's property at the date of her death all the capital gains can be wiped out and the cost base reset to market value at the date of her death. Your daughter could still it CGT free within 2 years of the death - potentially.

 

Yes the house is owned by my wife’s mother. We have lived in it and made all capital improvements and maintained it for about 26 years. We will continue to live in it after it is inherited and have no intention of selling, but will pass it on to our kids when we die.
So when you say ‘pass the tax profile on to my kids’ you mean the cost base to them will be the amount that was paid for the house by my wife’s parents back in the late 80’s? Ouch….

 

So if our kids inherit from us and they were to sell the house within 2 years of the them inheriting, the cost base becomes the property market value at the time of our death. Am I interpreting that correctly?

 

Actually, after re-reading this, I think you mean - whatever amount is rendered tax-free by us living in the house as our main residence AFTER we inherit, and as a proportion of the total years we have lived in it while renting as well, becomes part of the adjusted cost base passed on to our kids when they inherit?

 

If it's your ppor when you die, even if it used to be an IP.........

 

"our" does that mean you expect to inherit too or just your wife? If your wife you might inherit before you kids. If jointly inherit one of you will die before the other so there is an inheritance before the kids get it. same tax principles apply though

CGT on death can be wiped out if the property was the main residence at the date of death
Tax Tip 83: CGT on Death and the Passing of Property Tax Tip 83: CGT on Death and the Passing of Property

Tax Tip 241: Leave your children 2 properties CGT free on death Tax Tip 241: Leave your children 2 properties CGT free on death

 

no

 

The cost base will be what the mother's cost base was. but you say 'they' so presumably the month and father owned it originally and the father died? It might therefore have 2 different cost bases.

You might also be able to argue that you are the beneficial owners of the property and that the main residence exemption could apply for the last 26 years.

You need some complex tax advice

 

Agree. Its complex but not that complex. Its certainly not a simple one to explain esp when facts are trickle fed.

The issue has many variables amd you need to know what these are. OTHER property may play a part. The factual issues surrounding use of the property by the former owner,, your wife and her family and other issues will play a part.

 

Yes, the law is relatively straight forward, it is the application of the law to the facts. There seems to be 2 different cost bases potentially, who will inherit, is there a resulting trust, what will happen to the property, could it even qualify for the full main residence exemption etc.

 

Yes that’s correct, wife’s parents owned the house then passed to wife’s mother on the father’s death. The parents had lived in the house for a short time relatively but mainly over the years lived in other residences they owned and this property in question was rented from them by their children, one of whom is my wife. We have lived in the property for the last 25+ years and although we pay rent, have always met all costs of ongoing ownership and many improvements.
I don’t know for certain, but suspect the house would be left to my wife alone.

Thanks to all who have contributed to this discussion, it is very much appreciated believe me. Hopefully the events that trigger the required treatment for wife’s mother and to us for our kids are a long way off, but I now have a much better appreciation of what’s involved and we will seek specialist tax advice. Thanks