Inherited Assets and Capital Gains Tax
Understanding the Implications
When inheriting assets, it's crucial to be aware of the potential Capital Gains Tax (CGT) implications. CGT applies when you sell inherited assets, including shares, property, and other investments.
Who Is Liable for CGT?
The liability for CGT falls on the executor or beneficiary who sells the inherited assets. However, it's important to note that while there is no tax payable when you inherit the assets, the cost base (the amount you use to calculate the capital gain or loss) is reset to the market value at the date of inheritance.
When Do You Pay CGT?
You only pay CGT when you sell the inherited assets and realize a capital gain. A capital gain occurs when the sale price exceeds the cost base. The amount of CGT payable depends on your marginal tax rate and the length of time you held the assets.
Special Considerations for Inherited Shares
When you inherit shares, the cost base is reset to the market value at the date of inheritance. However, if the shares were acquired by the deceased before September 20, 1985, you may be eligible for a discounted cost base known as the pre-CGT cost base.
Tax Considerations for Buying and Selling Inherited Assets
Before buying or selling inherited assets, it's essential to consider the tax implications. For example, selling assets shortly after inheriting them may result in a higher CGT liability due to the shorter holding period. Consulting with a financial advisor or tax specialist is recommended to determine the most tax-efficient strategies.
Conclusion
Understanding the implications of CGT when inheriting assets is crucial for minimizing tax liability and making informed financial decisions. By factoring in the cost base reset and the timing of sales, individuals can optimize their tax outcomes and maximize the value of their inherited assets.
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