Is inheritance tax free?

Is inheritance tax free? In Australia, the short answer is “yes”.  There is no inheritance tax imposed at either a federal or state level.

The longer answer is “it depends”…

Certain taxes may apply to inheritance depending on the nature of the asset, and how it is dealt with by the beneficiary after it’s received. Here a few examples to consider:

1.  Capital Gains Tax: this is calculated when the inherited assets are either sold or transferred.  The gain (or loss) calculated can vary depending on the type of asset and the timing of the sale or transfer.

2.  Income tax: when a beneficiary inherits an asset, this can alter their marginal tax rate.  It’s important to think about the best way to transfer wealth so that a large portion isn’t lost to tax payments.

3.  Superannuation death benefit tax:  in most situations this will only apply if the beneficiary is a non-dependent of the deceased (ie not the spouse or dependent children) but there are still other circumstances when the nominated beneficiary of your Super could be taxed. It’s important to understand the rules governing your Super fund and the tax laws in this area before deciding on your beneficiary.

Regardless of your level of wealth, seek advice on the best tax planning strategy for your circumstances and be open minded to the options available.

One of the conversations we’re having with the people we help is around the gifting of assets whilst they’re still alive.  Many parents want to help children with their first home, start a business or share experiences together, and are looking at ways to gift part of the planned inheritance

Gifting has rules and limitations but can be a tax effective way of distributing assets.  Plus, you get to experience the joy of giving and seeing your loved ones using your gift to live the life they want!

Open minded conversations and planning are key to ensuring the wealth you have created is being distributed as efficiently as possible. 

Contact us today if you have any questions or would like to talk through your circumstances and requirements.

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