Deceased-Tax-Question

Posted On: Wednesday, June 27, 2018

Deceased Estate Tax Question

I have couple of questions on how income from deceased estate are taxed. Unfortunately, one of our director has passed away with a massive heart attack before Christmas so I need below clarifications:

Main Residence: Director has a house which is his main residence. He brought that house before 1985 (Pre CGT). As per his will this house will be sold and distributed to his Wife, 3 Children’s and 2 Grand Kids.

So, my query is:

  1. Because it his Main Residence there is no Capital Gain Tax and
  2. How the distribution of Sale Proceeds of this house to his Wife, 3 Children’s and 2 Grand Kids will be taxed? Will they be taxed or not? I am assuming that they will not pay because main source is not taxed in the first place?

Transfer of Shares Transfer in Unit Trust and Company: The deceased director has shares in Unit Trust and also holds shares in our company. As per his will these shares are equally given equally to his children. Does CGT apply? I assume CGT does not apply as it is just transfer, not sale. Please clarify in each instance – Trust and Company

Answer

We are sorry for your loss. In broad terms a deceased estate will be taxed on the same scales as a resident individual in the three years following the date of death.

In the event the executors are delayed by factors beyond their control, it is possible to apply to have the time extended and for the aforesaid rates of tax to continue.

It is confirmed there will be no CGT on the sale of the house as long as it sold within two years. In the event it is not then its cost base is the market value at the date of death.

Subject to this, the distribution of the proceeds is not taxable to the children.

You are correct in stating there should be no CGT on the transfer of the shares to the children – assuming they are post September 1985 assets, they are deemed to have acquired the shares at the same cost base as the deceased.

The same applies for both the shares and the units. Here we assume the shares are in the trustee company for the unit trust.

 

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