Do I pay tax when I inherit a property, and what happens when I later sell it?

What does the law say about inheriting?

Two sections of the Income Tax Ordinance, 2001 deal with what happens on death.

Section 75(2) says the transmission of an asset by succession or under a will “shall be treated as a disposal of the asset by the deceased at the time asset is transmitted”. So the Ordinance sees the deceased, not the heir, as the person disposing of the property.

Section 79(1)(b) then says no gain or loss arises on a disposal “by reason of the transmission of the asset to an executor or beneficiary on the death of a person”. The Finance Act, 2026 added an explanation: transmission of immovable property to a beneficiary on death “shall also include the transmission of assets by reason of family settlement amongst the family members consequent upon death of the person”. A settlement among heirs after the death is therefore treated the same way as the transmission itself.

Section 79(2) turns off the non-recognition rule where the acquirer is non-resident, but only for clauses (d), (e) and (f). Inheritance is clause (b), so an heir living abroad is not affected by that limit.

What about the heir? The sections written for death treat the heir as acquiring the property at a cost, not as earning income. Section 39(1)(la) separately taxes “any amount or fair market value of any property received without consideration or received as gift, other than gift received from” a relative. The text does not say whether a transmission on death falls within that clause. It does not expressly bring inheritance in, and this page does not settle the point.

What happens when I sell the inherited property?

The sale is an ordinary disposal. Section 37(2) computes the gain as consideration received minus cost, and section 37(1A) applies the Division VIII rates. The difficult part is the cost.

Section 76(8A), added by the Finance Act, 2026, says that where an individual acquires immovable property through inheritance, the cost “shall be the fair market value as defined under this Ordinance, of the property as provided under subsection (5) of section 68”, on transfer to the beneficiary. Section 68(5) is the value fixed for stamp duty by the District Officer (Revenue) or other authorised authority, used where the Board has not notified a value for the area under section 68(4).

Section 79(3) points the other way. Where clause (b) of section 79(1) applies, the person acquiring the asset is treated as acquiring an asset of the same character as the deceased held, and “for a cost equal to the cost of the asset for the person disposing of the asset at the time of the disposal”. That is the deceased’s original cost.

Both provisions are in force in the text amended to 30 June 2026. Section 76(1) opens with “Except as otherwise provided in this Ordinance”, and section 79(3) was not amended when section 76(8A) was added. The Ordinance does not say which one governs an inherited property. This page does not resolve the conflict.

Worked example (illustrative figures)

Ayesha’s father bought a house in Multan in 1998 for Rs. 1,500,000. He died in August 2026, and the house was transferred to Ayesha in October 2026. The stamp duty value on transfer was Rs. 18,000,000, and no Board notification covers the area. In 2027 she sells it for Rs. 22,000,000. Ignore incidental costs.

Reading	Cost (B)	Gain (A - B)
Section 76(8A): value on transfer	Rs. 18,000,000	Rs. 22,000,000 - Rs. 18,000,000 = Rs. 4,000,000
Section 79(3)(b): deceased’s cost	Rs. 1,500,000	Rs. 22,000,000 - Rs. 1,500,000 = Rs. 20,500,000

The difference is Rs. 16,500,000 of gain. At a 15% rate, that is Rs. 600,000 of tax under the first reading and Rs. 3,075,000 under the second. The 15% here is used only to show the scale. Which Division VIII column applies is itself not settled: the text does not say whether the heir’s holding period starts on the transfer to her or on the deceased’s acquisition. Section 79(3)(a) treats the heir as acquiring an asset “of the same character”, but does not mention dates. If the deceased’s 1998 date counted, a house held more than four years would sit at 0.

What if the inheritance happened before 1 July 2026?

Section 76(8A) was added by the Finance Act, 2026. The consolidated text does not state whether it applies to property inherited before it took effect. That is a question for the Finance Act, 2026 itself, which this page does not cover.

Common mistakes

• Assuming inheritance is a taxable sale by the heir. Section 75(2) makes it a disposal by the deceased, and section 79(1)(b) removes any gain.
• Treating a family settlement as a separate sale. The 2026 explanation to section 79(1)(b) includes a family settlement consequent upon the death.
• Assuming the cost question is settled. Section 76(8A) and section 79(3)(b) give different answers, and the text does not rank them.

What to check in the official text

Read section 75(2), section 79(1)(b) with its explanation, section 79(2) and (3), section 76(1) and (8A), and section 68(4) and (5). Advance tax collected by the registering authority on property transfers is covered on the separate pages about advance tax on buying and selling property; the text of those advance tax sections contains no specific exclusion for inheritance. Stamp duty and provincial transfer charges are outside this corpus.