ISLAMABAD: The Finance Bill 2026 has proposed a significant change in the tax treatment of inherited immovable property by introducing a new subsection (8A) in Section 76 of the Income Tax Ordinance, 2001.
Under the proposed amendment, the cost of an immovable property received through inheritance will be determined based on its fair market value (FMV) on the date of the original owner’s death, rather than the historical acquisition cost previously associated with the asset.
The proposal is expected to provide tax relief to beneficiaries when inherited property is subsequently sold, but tax experts have raised concerns about possible legal conflicts with existing provisions of the Income Tax Ordinance.
Fair Market Value to Become Cost Base for Inherited Property
According to the Finance Bill, where an individual acquires immovable property through inheritance, the property’s cost for tax purposes will be deemed to be its fair market value as determined under Section 68(5) of the Ordinance on the date of the deceased owner’s death.
The amendment effectively resets the property’s tax cost base to its market value at the time of inheritance.
Tax professionals believe this change could significantly reduce future capital gains tax liabilities for heirs, particularly in cases where property values have appreciated substantially over time.
Potential Conflict with Existing Tax Provisions
Tax expert M Amayed Ashfaq Tola has highlighted that the proposed amendment may conflict with existing provisions governing inherited assets.
Under Section 79(1)(b) of the Income Tax Ordinance, no gain or loss arises when an asset is transferred to an executor or beneficiary upon the death of its owner. Furthermore, Section 79(3) currently provides that a beneficiary inherits the asset with the same character and cost that it had in the hands of the deceased person.
According to tax experts, the newly proposed Section 76(8A) appears to establish a different cost basis by replacing the historical cost with the property’s fair market value on the date of death.
Wealth Statement Concerns May Arise
Experts have also warned that the amendment could create practical issues in wealth statement reconciliations.
Traditionally, tax authorities verify inherited assets by reviewing the wealth statements of the deceased individual to determine whether the property was declared and at what value.
If beneficiaries record inherited property at fair market value while the deceased owner’s wealth statement reflects a lower historical value, significant discrepancies could emerge between the outgoing and incoming wealth positions.
Such valuation differences may lead to documentation challenges and potential queries during tax assessments.
Lower Capital Gains Tax for Heirs
Despite concerns over legal inconsistencies, the proposal is generally viewed as beneficial for taxpayers inheriting property.
By treating the fair market value at the date of death as the acquisition cost, any future capital gain on disposal of the inherited property would be calculated from a higher cost base.
As a result, heirs could face substantially lower taxable capital gains when they eventually sell inherited real estate.
Government May Need Further Amendments
Tax practitioners believe the government may need to introduce corresponding amendments to other sections of the Income Tax Ordinance to remove potential contradictions between Section 76 and Section 79.
Experts stress that any clarification should preserve the long-standing principle that inheritance itself is not a taxable event while ensuring consistency in the treatment of inherited assets across the tax framework.
If enacted in its current form, the proposed amendment could become one of the most significant changes affecting estate planning, wealth reporting, and capital gains taxation under the Finance Bill 2026.
