Q: My wife and I have an investment property in joint names. The property was purchased in January 1981 which pre dates capital gains tax. What is the situation when one of us dies?

A: When you buy an asset with another person, the asset is either bought as “Joint Tenants” or “Tenants in Common”.

As “Joint Tenants”, ownership is held equally. On the death of one of the owners, the property title will pass to the surviving owner without the asset forming part of the deceased’s estate.

If the asset is purchased as “Tenants in Common”, each owner declares a percentage of ownership of the asset. Unlike Joint tenants, you can hold unequal interests. On the death of one of the owners, the deceased owner’s interest in the asset forms part of their estate and is dealt with in accordance with the terms of the will.

Whether the asset is bought as either “Joint Tenants” or “Tenants in Common”, each owner will make a Capital Gain or loss in line with their interest when the asset is sold or another Capital gains tax event occurs.

If the assets are owned as “Joint Tenants” and one owner dies, their interest is taken to have been acquired by the surviving owner on the date of death. As the asset is owned jointly, half the value of the asset on this date will be the cost base for determining any future CGT liability in relation to the inherited share of the property.

In your case, as the property was acquired prior to 20 September 1985, the surviving partner will need to determine the value of the property at the date of death. Half the value of the asset on this date will form the cost base for determining any future CGT liability in relation to the inherited share of the property.  The original share of the property will remain CGT exempt whilst the surviving partner retains ownership or unless another Capital gains tax event occurs.

Follow Andrew on Twitter @AndrewHeavenFP. This article was originally published in The Australian