There has been a lot of talk in the media about the government’s new “widow tax” following the Budget brought down earlier in the year.
By way of background the Budget saw the abolition of negative gearing for properties acquired after the Budget night (ie 12 May 2026). So, if you acquired a rental property after that date you won’t be able to negatively gear it (albeit you will still be able to negatively gear it up to 30 June 2027 – but thereafter you won’t be able to).
However, often properties are acquired in joint-names (as opposed to tenants-in-common).
What this means is that on the death of one of the joint owners, their joint interest in the land automatically passes at the time of the person’s death to the other joint tenant under the rule of “survivorship”. It cannot be bequeathed or passed to another person.
(This, apparently, is a longstanding English land law principle that has something to do with doing away with the complexities of conveying land under the “old land law title” system.)
From a negative gearing point of view, it means that a person may “unwittingly” acquire a rental property after 12 May 2026 (that is, specifically a 50% interest in it) – and therefore be denied negative gearing when, in effect, the property was acquired before that date.
It also means that a person may be in the odd position of being able to negatively gear one-half of the property but not the other half of the property.
This is what is meant by the “widow tax” in the media.
However, the government has now remedied this problem by amending the tax law to exclude an interest in property acquired under the “rule of survivorship” from the new negative gearing prohibition. (Likewise, for the same reasons, it has done the same for properties acquired after 12 May 2026 under CGT roll-over relief for relationship or marriage breakdown.)
This matter also raises the general issue of the CGT treatment of jointly owned property – and, in particular, where one joint owner dies and the other party ends up owning both interests in the property.
The starting point in all this is that each joint interest in a property is a separate asset for CGT purposes. So that when for example, a jointly owned property is sold, each joint owner returns their particular share of the capital gain (or loss) in their own tax return.
However, the issue becomes a bit trickier when one joint owner dies. Basically, in this case the surviving joint owner owns two different interests in the land – each with their own “CGT characteristics” of a specific “cost” and a specific “time of acquisition”.
The matter can get more complicated when the “survivor” bequeaths such a property under their will or if the property was originally acquired before 20 September 1985 (in which case market values come into play).
Suffice to say, if you own a jointly owned property, or have any dealings in respect of one, it is worthwhile to make an appointment to see us so we can properly explain how these important rules work – especially in the light of all the recent Budget changes.
