A transfer of residential property on the death of a person to an executor or administrator of a deceased estate, and the subsequent disposal, is not taxable under the bright-line property rule.
The subsequent sale or disposal of inherited property by the beneficiary, is also not taxable under the bright-line property rule.
Rollover relief for transfers to qualifying family trusts
From 1 April 2022, rollover relief applies to transfers of inherited residential property from a beneficiary to a qualifying family trust.
Ali purchased a house as a private residence for himself in May 2021. In his will, Ali has provided that his property is inherited by his son, Omar, when Ali dies.
At the time of Ali’s death, the property is transferred to the executor under Ali’s will in April 2022. As part of distributing all the assets under the will, the executor transfers the property to the beneficiary, Ali, in August 2022.
The transfers from the deceased (Ali) to the executor of the estate, and from the executor to the beneficiary (Omar), are not subject to the bright-line property rule as these transfers are exempt. Therefore, there is no bright-line tax to pay under the bright-line property rule.
Any subsequent disposal by Omar is also exempt, so if Omar later sells the property, he will not pay tax under the bright-line property rule.
Omar transfers the property to the Omar family trust in May 2023. Omar is the principal settlor and a beneficiary of the trust (which qualifies as a rollover trust) at the time of transfer.
Because the transfer was made after 1 April 2022, rollover relief applies to the transfer from Omar to the Omar family trust, meaning the exemption from the bright-line property rule for inherited property is rolled over to the trustees of the Omar family trust.
If the trustees dispose of the property, they will have the same bright-line tax treatment that Omar had on disposal – that is, the disposal is exempt from the bright-line property rule and there is no bright-line tax to pay.
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