Government revises Finance Bill proposal by linking inherited property’s cost to transfer date instead of original owner’s death
ISLAMABAD: The federal government has revised the valuation mechanism for inherited immovable property through the Finance Act, 2026 by changing the reference date for determining its fair market value under the Income Tax Ordinance, 2001.
The Finance Act inserts a new Section 8A into the Income Tax Ordinance, 2001, clarifying how the cost of inherited immovable property will be determined for tax purposes.
Under the newly enacted provision, where an individual acquires an immovable property through inheritance, the cost of that property in the hands of the beneficiary shall be its fair market value, as defined under the Ordinance, determined in accordance with Section 68(5) at the time the property is transferred to the beneficiary.
Change from the Finance Bill
The final law differs from the proposal originally introduced through the Finance Bill, 2026.
The Finance Bill had proposed that the cost of inherited immovable property should be determined on the basis of its fair market value on the date of the original owner’s death.
However, following parliamentary approval, the Finance Act, 2026 replaces that benchmark with the fair market value at the time of transfer of the property to the beneficiary.
Tax implications
The amendment is expected to provide greater clarity regarding the tax cost of inherited immovable property for beneficiaries, particularly when calculating capital gains or determining the property’s tax base for future transactions.
By linking the valuation to the transfer of the inherited property rather than the date of death, the government has adopted a more practical approach that aligns the property’s tax cost with the point at which ownership legally passes to the beneficiary under Section 68(5) of the Income Tax Ordinance.
Tax practitioners believe the amendment will help reduce ambiguity in determining the acquisition cost of inherited properties and provide a clearer basis for tax compliance in future property transactions.
The new provision takes effect through the Finance Act, 2026 and forms part of the government’s broader package of amendments to modernise Pakistan’s income tax laws.
