To avoid capital gains tax (CGT) on inherited property, the primary strategies in Australia revolve around utilizing the main residence exemption, the two-year disposal rule, and the stepped-up cost base.
CGT doesn't usually apply at the time you inherit the dwelling, however it will apply when you later sell or dispose of the dwelling, unless an exemption applies. if you dispose of the inherited property within 2 years (or the within an extension period) of the deceased person's death.
An easy and impactful way to reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes on assets while they remain in the account.
In summary: You don't pay CGT when you inherit a property (although you may have to pay Inheritance Tax) You may need to pay CGT if you later sell or gift the property and it has risen in value. Your CGT bill depends on the probate value, sale price, allowable costs and available reliefs.
Typically, when you inherit an asset, capital gains tax will not apply. However, when you sell an asset that you have inherited, CGT may become relevant to any money you make from the sale of the asset.
An inherited property is exempt from CGT if you dispose of it within 2 years of the deceased's death, and either: the deceased acquired the property before September 1985. at the time of death, the property was the main residence of the deceased and was not being used to produce income.
Every individual has a basic Inheritance Tax (IHT) threshold of £325,000, known as the Nil Rate Band. Assets below this value generally pass to beneficiaries free of tax. If the estate is worth more than that, IHT at 40% usually applies on the excess, unless exemptions or reliefs reduce the amount due.
How to calculate capital gains
6 options for passing down your home
In simple terms: you can sell or restructure business assets without paying CGT immediately. The tax is postponed until you eventually sell the new asset or another “CGT event” happens, like stopping business use.
You'll need to add half of your profit to your income for the year. Because your profit was $100,000, you'll report $50,000 as a taxable capital gain. Your personal tax rate is then applied to the total amount of income you reported to determine how much tax you owe.
90% of the assets need to be used in business operations at the time of the sale. These figures should not be difficult to reach for an actively operating business, but it could be necessary to move some assets to a holding company or sell them prior to selling the shares.
This will, given real estate's tendency to appreciate in value over time in the United States, usually be more than the prior owner's basis. The bottom line is that if you inherit property and later sell it, you pay capital gains tax in an amount based only on the value of the property as of the date of death.
There are no inheritance or estate taxes in Australia. However, you may have tax obligations for the assets you inherit: capital gains tax may apply if you dispose of an asset inherited from a deceased estate. income tax applies as usual to any dividends or rental income from shares or property you inherited.
In the case where an asset is owned by a deceased person for longer than 12 months and then sold by a beneficiary, a 50% CGT discount would apply, effectively halving the taxable capital gain.
Take immediate steps to manage the property, such as addressing mortgage payments, property taxes, insurance, and utilities. Carefully consider whether to keep, sell, or rent the inherited house, especially if there are multiple heirs, and be aware of potential tax implications.
Give more money away
Lifetime gifting is a straightforward way to begin reducing your IHT bill. By gifting money during lifetime, that would have been part of an inheritance anyway, you reduce the size of your estate so that there is smaller amount subject to IHT on your death.
If you're financially secure and want to preserve the property for future generations, keeping it may be the right choice. If you're looking for a quick, efficient sale and want to avoid the headaches of a traditional market, selling via auction could be your best bet.
In fact, the average estate pays just 6% in inheritance tax. To be clear, capital gains tax is payable on any amount that you make above the value of the property when you inherited it (after allowable deductions have been taken into account) – i.e. your profit – which only comes into play when the property is sold on.
What is the seven-year rule in Inheritance Tax? The seven-year rule states there is no Inheritance Tax due on certain gifts (potentially exempt transfers) given to a second party seven or more years before you die.
The annual amount that one may give to a spouse who is not a US citizen will increase to $190,000 in 2025. In addition, the estate and gift tax exemption will be $13.99 million per individual for 2025 gifts and deaths, up from $13.61 million in 2024.
Technically speaking, you can give any amount of money you wish as a gift to one or more of your children or any other member of family. Some parents also choose to buy property and put it into their child's / children's name(s).
Advantages of long-term capital gains
In 2026, a single filer with taxable income up to $49,450 pays 0% on long-term capital gains, while short-term gains in that same income range are taxed at ordinary income rates up to 12%.
IHT may have to be paid on the estate if it's worth more than the tax-free threshold of £325,000. This means that the first £325,000 of your estate is tax-free – the 40% tax only applies to any assets over this threshold.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.