Beware Capital Gains Tax when leaving the family home to loved ones

YOU’VE decided to leave the family home to the kids, but what you decide next is just as important. David and Libby Koch advise on how to avoid a tax sting.

THERE is nothing worse than a close family being torn apart by siblings bickering about a parent’s estate. For this reason, it is a clear cut case of, the more people talk about their estate, the easier the transition and the less the emotional heartache.

The first thing you want to do is maximise the benefit for those left behind. If your will says your home should be sold and the money distributed to your loved ones, be wary of Capital Gains Tax (CGT). While you may be well beyond the reach of the tax man your property isn’t.

If the trustee sells the home your estate will be subject to CGT on the profit. This is worked out as the difference between the price at which you bought the property and the sale price or the price for which the trustee sells it.

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Be more relaxed knowing you’ve made the right decision. Picture: iStock

If, on the other hand, the actual property is passed on to your remaining relatives (not the amount of cash gained from the sale) and they choose to sell it, the CGT is calculated differently. In this case it is payable on the difference between the property valuation at the time of death and the price they receive when they sell the home; a gap which may not be significant if they act quickly, or at a particular cycle of the market.

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Bear in mind this is only applicable to houses bought after the introduction of the Capital Gains Tax in September 1985. So any houses bought before this period are exempt. If you are making a will and your property falls within the CGT net it may be worth seeking some professional advice as to the most tax effective method of disposal.

Originally published as Beware Capital Gains Tax when leaving the family home to loved ones