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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 test.

The subsequent sale or disposal of inherited property by the beneficiary, is also not taxable under the bright-line test.

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. 

Ownership transfers and rollover relief 

Example: Transfers of deceased estate and inherited property

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 test as these transfers are exempt. Therefore, there is no tax to pay under the bright-line test.

Any subsequent disposal by Omar is also exempt, so if Omar later sells the property, he will not pay tax under the bright-line test.

Fact variation

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 test 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 test and there is no tax to pay.

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Last updated: 21 Jun 2024
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