Many people are aware that if you inherit a home and sell it within two years of the deceased’s passing, the sale may be exempt from capital gains tax (CGT).
However, there is another way to obtain a full CGT exemption on an inherited home—by ensuring that a “relevant” person resides in the property as their primary residence from the date of the deceased’s passing until the home is later sold, transferred, or otherwise disposed of.
The individuals who qualify as “relevant” persons include:
When applying this exemption, there are several important considerations—both advantages and potential limitations:
● Immediate occupancy is not required—the relevant person may move in as soon as it is “practicable,” depending on the circumstances. In the case of a surviving spouse, this is typically straightforward.
● Successive occupancy is permitted—if different eligible individuals reside in the home consecutively (e.g., a surviving spouse followed by a beneficiary who later inherits the home), the exemption remains valid.
● The exemption applies on a proportional basis—if multiple beneficiaries inherit the home, only the beneficiary who resides in it qualifies for the CGT exemption, and only for their share of the property. However, there are ways to address this issue effectively.
● A right to occupy must be explicitly stated in the will—if an individual is to be granted occupancy, they must be specifically named in the will. A general clause giving the executor the authority to grant such rights will not be sufficient, based on the Australian Taxation Office’s (ATO) interpretation.
● A surviving spouse must have been living with the deceased at the time of death—to qualify for the exemption, they cannot have been permanently separated from the deceased.
Additionally, another CGT concession, known as the “building concession,” may apply in cases where renovations are undertaken or intended following the home’s acquisition. This concession could allow the property to retain its CGT-exempt status without requiring a relevant person to reside in it or for the home to be sold within two years of the deceased’s passing.
However, it is important to note that if this building concession is applied, the beneficiary cannot designate any other property as their main residence for CGT purposes during the period in which the concession is used.
Given the complexity of CGT exemptions and concessions, we strongly recommend seeking professional advice if you inherit a home and plan to reside in it—or even beforehand—to ensure the most effective tax planning strategies are in place.
