Inherited property and the bright-line test in NZ

If you inherit a house in New Zealand, the bright-line test does not tax you when you sell it, however soon that is. The transfers from the person who died to the executor, and from the executor to you, are treated as happening at the deceased's total cost, so no bright-line profit arises. Inland Revenue's guide IR1229 then says plainly that "the subsequent sale or disposal of the inherited property by the beneficiary is also not taxable under the bright-line test". The exceptions are narrow: a share you buy from a co-beneficiary is not inherited, and the other land sale rules can still reach land the deceased would have been taxed on.

The short answer

This guide is general information about how the rules work, not tax advice. Estates vary a great deal, so check with your accountant or the estate's lawyer for your situation. Rules checked 10 November 2026 against Inland Revenue's IR1229 Bright-line property tax (March 2026) and the Income Tax Act 2007.

The bright-line test taxes the profit on residential property sold within 2 years of the bright-line start date, which for a normal purchase is the day the title is registered to you. Inheritance does not fit that pattern, and the law treats it separately:

• Death is not a taxable sale. The move from the deceased to the executor or administrator happens at the deceased's total cost, not market value, so nothing is taxed on the way in.
• The executor passing it to you is not taxable either. The same cost rule applies to the transfer from the executor or administrator to the beneficiary.
• Your later sale is outside the test. It does not matter whether you sell three months or three years after the title reaches you.

So if your parent bought a house in 2025 and you inherit and sell it in 2026, the bright-line test does not apply. Our bright-line calculator has an "inherited" option under special cases.

Why inherited land is outside bright-line

IR1229 groups inheritance with the other forms of rollover relief. Rollover relief means the person passing the property on is not taxed at the transfer, and the person receiving it is treated as having bought it at the same time and for the same price as the previous owner. For inherited property the law goes one step further: the beneficiary's later sale is exempt too.

The legal basis is in section CB 6A of the Income Tax Act 2007, the bright-line section itself. Subsection (5)(a) says the section does not apply to a disposal of land by an executor or administrator who acquired the land on the owner's death, or by a beneficiary who acquired it from the estate. In other words, both people in the chain after the deceased are carved out of the bright-line test by name.

Inland Revenue's example (IR1229 p28) makes it concrete:

Ali bought a house as a private residence in May 2022. When he died, the property was transferred to his executor in April 2024, and the executor transferred it to his son Omar, the beneficiary, in August 2024. Neither transfer was taxable, and IRD says that if Omar later sells, "there will be no tax to pay under the bright-line test".

IRD's bright-line rule page says the same. For the test in general, see the bright-line test explained.

The executor's position

Executors and administrators often have to decide whether to sell a property or transfer it to the beneficiaries. For the bright-line test, the position is the same either way:

Two points are worth knowing as an executor.

Bright-line is not the only land rule. The bright-line test only applies if none of the other land sale rules apply first (QB 25/08 para 18). Inland Revenue's statement QB 25/08 notes that land received from a deceased person's estate can be taxed under section CB 15 if the deceased would have been taxed under the intention test (section CB 6) had they kept the land and sold it themselves (para 41). An estate is most likely to meet this where the deceased bought land intending to resell it, or was in the business of dealing, developing or building. Our intention test guide explains that rule.

Keep the deceased's cost records. Because the transfers happen at the deceased's total cost, what the deceased paid for the property and any improvements matters if another rule ever applies.

The beneficiary's position

Once the title is in your name, you can live in the property, rent it out or sell it without the bright-line test applying to the inherited interest. There is no minimum holding period and no main home test to meet.

Moving it into a family trust

Many people who inherit a property consider putting it into a family trust. IR1229 (p28) says this transfer may qualify for rollover relief, and that the inheritance exemption can travel with it:

Omar transfers the house he inherited to the Omar family trust in May 2026. He is the principal settlor and a beneficiary. Because the transfer is after 1 July 2024, rollover relief applies, and "the exemption from the bright-line test for inherited property is rolled over to the trustees". If the trustees sell, the sale is exempt and there is no tax to pay.

Rollover relief to a trust has conditions of its own, including that all beneficiaries have been associated with the person transferring for at least 2 years (with some exceptions), and that associated-person rollover is used only once in any 2-year period. Our guide to rollover relief for trusts and partners covers them.

Passive receipt and the intention test

The intention test taxes land bought with a firm intention of resale, at any time. A beneficiary does not buy inherited land, so QB 25/08 says that land received passively, such as by gift, is generally not taxed under section CB 6 because you did not acquire it with a purpose or intention of disposal (para 39). The section CB 15 point above, about land the deceased would have been taxed on, is the exception to watch.

When part of the property was bought, not inherited

The exemption covers what you inherit. It does not cover a share you buy. IR1229 (p28) gives the common case, where two people inherit a property and one buys the other out:

Matt and Arun are each left a half-share in a rental in Clive's will. Matt sells his half to Arun at market value, and Arun is registered as sole owner on 12 April 2024. Arun sells on 13 September 2025. The half Arun bought from Matt has a bright-line start date of 12 April 2024 and is sold within 2 years, so Arun pays tax on the profit from that half, "unless rollover relief between associated persons applies".

Rollover between associated persons can apply where, for example, the co-beneficiaries are siblings who have been associated for at least 2 years. Cousins are not associated under the relatives rule, which only reaches two degrees of blood relationship (parents, grandparents, children, grandchildren and siblings).

Worked example: buying out a co-beneficiary

Here is the same pattern with our own figures, and dates moved forward so the sale falls in the 2026/27 tax year. Arun and Matt are cousins who each inherit half of a house. Arun buys Matt's half for its market value of $450,000, and the transfer is registered on 12 April 2025. Arun then signs an agreement to sell the whole house on 13 September 2026 for $960,000, settling on 15 October 2026. Agent and legal fees on the sale are $18,000. Arun earns a $70,000 salary.

Arun's $21,000 profit is added to his $70,000 salary and taxed at his 2026/27 marginal rates: $8,100 of it fills the 30% band up to $78,100 ($2,430.00) and the other $12,900 is taxed at 33% ($4,257.00). The extra income tax is $6,687.00. Settlement is in October 2026, so it goes in his 2026/27 return.

The inherited half does not appear in the calculation. We split the price and selling costs evenly and left out Arun's costs of buying Matt's share, which would also be deductible. Our guide to deductible costs lists what counts, and how the gain is taxed explains the bands.

Selling an inherited home: a checklist

When you come to sell an inherited property, these are the questions that decide whether anything is taxable:

1. Did all of it come to you through the estate? If yes, the bright-line test does not apply to your sale. If you bought out a co-beneficiary, or added a share some other way, test that share separately as in the example above.
2. Was the deceased a dealer, developer or builder, or did they buy with a plan to resell? If so, ask whether section CB 15 could carry their position to you (QB 25/08 para 41). Our is my gain taxable checker walks through the land rules in order.
3. Has the property moved again since you inherited it? A transfer to a family trust with rollover relief keeps the exemption (IRD's Omar example). A sale or gift to someone else gives them a new start date unless rollover applies.
4. Keep the paperwork. The will or letters of administration, the transfers and the deceased's cost records show the property is inherited.

If the sale is exempt, there is no bright-line profit to report. IRD's form IR833 is completed for each taxable bright-line sale (IR1229 p45), so it is relevant only to a bought share or another taxable part.

If you rent it out first, see selling a rental; if you live abroad, selling from overseas.

What Labour's proposal would mean

New Zealand has no general capital gains tax. Labour campaigned at the 7 November 2026 election on a 28% tax on gains on residential and commercial property made after 1 July 2027, and its 28 October 2025 release lists inheritances among the exclusions. That is a proposal only: official results are due 27 November 2026 and no government has been formed. Our guide to Labour's proposal and election calculator set out what was published.

Questions people ask

Do I pay bright-line tax if I sell a house I inherited within 2 years?

No. IR1229 says the beneficiary's later sale of inherited property is not taxable under the bright-line test, whenever it happens. Only a share you bought, rather than inherited, can be caught.

Is the executor taxed if the estate sells the house?

Not under the bright-line test. Section CB 6A(5)(a) of the Income Tax Act 2007 says the bright-line section does not apply to a disposal by an executor or administrator who acquired the land on the owner's death. Other land rules can still apply in unusual cases.

I bought my sibling's half of an inherited house. Is that half taxable?

It can be, if you sell within 2 years of that half being registered to you. IRD's Matt and Arun example says so, unless rollover relief between associated persons applies. Siblings are associated, so check the 2-year association and once-in-2-years conditions.

Can I move an inherited house into my family trust without losing the exemption?

IRD's Omar example says yes, where rollover relief applies to the transfer: the exemption rolls over to the trustees, and their later sale is also exempt. The trust rollover conditions must be met.