I like the idea of transferring major funds to a joint account. We did this, urgently, two days before mum died on the advice of a lawyer. Both brother and I had P of A so as soon as the lawyer said that, I dragged him out of work, told him not to answer the phone and straight to the bank. It meant as soon as we felt able after her passing we simply transferred the funds to each other. But it's non cash assets that's the issue.
This was advice from our lawyer. It isn't to be considered legal advice here.
B lives in UK. A lives in Australia.
Generally, inheritance of assets following a death does not trigger a liability for Capital Gains Tax (CGT) in respect of any capital gains on the asset. CGT will apply only when an executor or beneficiary disposes of an asset. Your estate will not be liable for CGT, and at the time of inheritance, neither will A or B (sons), unless there is a disposal, such as a sale.
In some instances, a foreign resident will incur CGT on inherited assets. However:
- cash is not a CGT asset, and therefore a distribution of cash to B will not be impacted by any CGT event; and
- the passing of real property from your estate to B will not give rise to any CGT consequences at the time of his inheritance.
However, the sale or disposal of real estate will always give rise to CGT in Australia. This also applies to any real estate inherited via a Will (unless that property is your main residence
and is sold with settlement occurring within two years of the date of death (with some time extensions possible), in which case it will be CGT exempt).
If, as a result of your Will, A inherits your main residence and it then becomes his main residence and he then sells or disposes of it, he would be entitled to the main residence CGT exemption. B as a foreign resident would not be entitled to the main residence exemption.
As per your current instructions, both A and B are to receive your real estate equally on the death of the last of you. Depending on when they sell the inherited property, they are likely to incur CGT. There are some distinctions in how that CGT event would be treated between B and A.
Foreign Resident Capital Gains Withholding
B may one day wish to sell any property he may inherit. As a foreign resident, when he does so, a 12.5% withholding tax will be payable at the time of settlement. This means that 12.5% of the purchase price, should the property be sold for more than $750,000, must be withheld by the purchaser and paid to the ATO. This tax applies to any Australian property, regardless if B is the sole owner or has only a part interest. In addition, B would have to put in a tax return and pay the remainder of the CGT calculated at the applicable tax rate. As a foreign resident, B would not be able to claim a 50% discount available to Australian residents.
The 12.5% withholding tax would not apply to a sale by A as an Australian resident, but he would nevertheless be liable for CGT, which would have to be disclosed in his tax return.
Main Residence Exemption
You have instructed that the C property is your main residence for tax purposes. You have also instructed that the property, as part of the residue of your estate, will be left to A and B equally on the death of the last of you.
A may be exempt (or partially exempt) from a CGT event when it occurs, such as on the disposal of the property.
For this exemption to apply to A the following points must be satisfied:
- At the time of the death of the last of you the C property is your main residence and not used to produce income; and
- A disposes of his ownership interest in the property and settlement occurs within two years of his inheriting it; OR
- From the death of the last of you to the time A eventually disposes of the property, the property was not used to produce income AND it was the main residence of A (or any other person who has the right to occupy the property under your Will).
If A does not meet the above criteria for a full exemption, he could possibly qualify for a partial exemption. The amount of CGT payable would be determined with reference to the number of days the property was not used as Mark’s main residence or was used to produce income.
If you sell the C property during your lifetimes, or another property becomes your main residence instead, the above exemption could apply to that property in lieu of C.
B as a foreign resident, is not entitled to the Main Residence Exemption.
In any case, as noted above, B and A can avoid a CGT event on the sale of inherited property that was your main residence if settlement occurs within two years (or permitted extension period) of the date of death.
Sign. Cash is so much easier.
.
). And it was only a matter of weeks later that he started to lose the plot. A very close call.
