New definition of cost of immovable property received thru inheritance proposed

ISLAMABAD: The Finance Bill 2026 (Bill) has proposed a new definition of cost of immovable property received through inheritance inserting a new sub-section 8A in Section 76 of the Income Tax Ordinance 2001 (2001 Ordinance).

The Bill has proposed that the cost of such property in the hands of the individual receiving such property through the inheritance shall be the fair market value of the property as provided under Section 68(5) of the 2001 Ordinance on the day of the death of the original owner.

Tax expert M Amayed Ashfaq Tola, President of Tola Associates explained to Business Recorder that this proposed amendment is in contradiction of Section 79 (1) (b) of the 2001 Ordinance, whereby no gain or loss shall be taken to arise on the disposal of an asset by reason of the transmission of the asset to an executor or beneficiary on the death of a person.

He further explained that the FBR in such cases usually requires the previous wealth statements of the deceased person/ original owner to ascertain whether such property was included in the wealth of the original owner and at what value. In these cases, there will be a value mismatch between the original owner’s wealth and the beneficiary’s wealth inflow, which will create issues. Further, as per Section 79 (3), where the person acquiring the asset acquires the same through transmission of the asset upon death of a person (i.e.; succession), then the person acquires the asset with:

(i) The same character as the person disposing the asset; and (ii) Cost equal to the cost of the asset for the person disposing of the asset at the time of the disposal.

He further explained that this proposed amendment may create an anomaly and a potential conflict between 76 (8A) and Section 79 (3). He explained that the proposed amendment may also be ineffective, as Section 76 starts with “Except as otherwise provided in the Ordinance, this section shall establish the cost of an asset for the purposes of this Ordnance”.

He stated that although, this amendment is beneficial for the person receiving the property vide inheritance, as his cost will the FMV on the date of death of the original owner. This means that when the property is subsequently sold, the capital gain shall be lesser than if the cost would have been the historical cost. However, the Federal Government must carefully make corresponding amendments to remove the above said anomaly and conflict without actually making inheritance a taxable event.

Copyright Business Recorder, 2026