Financial Planning For Beneficiaries – Tax Implications of Inheritance

Most of us would rather not think about the death of a loved one. Unfortunately, like paying tax, it is unavoidable. But what happens when you are the beneficiary of a deceased estate? In this article we discuss the basics of receiving an inheritance:

A loved one has passed away. What happens now?

A person known as an Executor is appointed to gather the assets of the deceased person, pay their debts, and spread the balance amongst their beneficiaries. If they had a will, this person will be appointed in accordance with the deceased’s wishes. If the died without a will (known as “intestate”), an Executor is appointed by the State.

What are the tax implications of receiving an inheritance?

As there are no death duties in Australia, death itself does not incur any additional tax. However, if you inherit an asset and then sell it, you may be liable for Capital Gains Tax (CGT). One of your aims as a beneficiary will be to minimise or avoid this tax.

  • The family home: typically the family home is exempt from CGT. The same applies if you inherit a family home provided you sell it within two years. Outside of this period, you would be assessed on the increase in value since the date of death at the time of sale.
  • Other assets: If you inherit other assets such as character (other than the family home), shares, and other investments, you may be liable for CGT if you sell them. It depends on when they were purchased. You can save money and hassle by finding out their buy price or their value at the date of death.
  • Tax returns: In the year of the deceased’s death two tax returns are required – one for the deceased person up to the date of death, and one for the estate for the remainder of the financial year. Both tax returns qualify for the complete tax-free threshold. Less tax may be payable if the estate sells an asset and gives you the cash instead of you getting the asset and selling it.

Getting financial advice for inheritance

Knowing what to do after receiving an inheritance can be difficult. A specialized financial planner can assist you in managing your inheritance to ensure that you maximise your investment possible whilst minimising the possible tax implications. For more information or to position your free first financial planning meeting with a financial planner in the Sydney CBD, give us a call on 02 8238 0888, or fill in our online form. Make sure your adviser is a member of the AIOFP – the Peak Body for Independently Owned Financial Planners in Australia.

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