Vacant Residential Land tax on deceased estates

From 1 January 2025, Vacant Residential Land Tax (VRLT) expanded from inner and middle Melbourne residential land only, to residential land anywhere in Victoria.  Where residential land in Victoria is vacant for more than 6 months in a year, it may be subject to VRLT.  For example, residential land that was vacant for more than 6 months in 2025 may be subject to VRLT in 2026.

VRLT applies to not only residential land with an existing home on it that has been vacant for more than 6 months in the calendar year preceding the tax year, but it also applies to the following residential land:

1.         residential land with a home that has been under construction or renovation for 2 years or more; and

2.         residential land with a home on it that has been uninhabitable for 2 years or more

From 1 January 2026, VRLT will also affect unimproved residential-zoned land that has been undeveloped for more than 5 years.

 If someone dies and they owned residential land, careful consideration must be given to VRLT.  Determining if and/or when residential land owned by a deceased person will be subject to VRLT will depend on whether the residential land was owned and occupied by the deceased as their principal place of residence or as an investment property immediately prior to their death.

 If, immediately prior to their death, the residential land was used and occupied by the deceased as their principal place of residence, the residential land will be exempt from VRLT under the principal place of residence (PPR) exemption, immediately following the date of death.  However, whilst in this circumstance the residential land will be exempt from VRLT immediately following the date of death, this exemption will not last forever.  The PPR exemption will only apply for a period of up to 3 years following the date of death.  If the residential land is not dealt with (i.e. transferred to beneficiaries or sold) within this timeframe and is then vacant for more than 6 months in a year, the residential land will become subject to VRLT.

If, immediately prior to their death, the residential land was not used and occupied by the deceased as their principal place of residence, the residential land will be subject to VRLT immediately in the year following the date of death, if the residential land was vacant for more than 6 months, which includes the year of death. 

A notification must be made to the State Revenue Office by 15 January each year if residential land in Victoria was vacant for more than 6 months in the preceding calendar year.  The Executor/Administrator of a deceased person’s estate will be responsible for making the VRLT notification to the State Revenue Office on behalf of the Estate and may become personally liable on behalf of the Estate, in the event that they fail to do so, and it is determined the residential land owned by the deceased was subject to VRLT.   The Executor/Administrator may not only be personally liable for the VRLT but could also be personally liable for the penalty tax applied for failing to notify the State Revenue Office of the deceased’s vacant residential land.

VRLT is calculated on a percentage of the Capital Improved Value (CIV) of the residential land and increases each consecutive year which the residential land is vacant.

VRLT is calculated as follows:

1.         Vacant for one year – 1% of the CIV;

2.         Vacant for two consecutive years – 2% of the CIV; and

3.         Vacant for three or more consecutive years – 3% of the CIV.

For example, residential land not used and occupied as the deceased’s PPR immediately prior to their death, with a CIV of $550,000.00, which is vacant for more than 6 months in 2025, will incur VRLT of $5,500.00 in 2026, which is 1% of the CIV.  If the CIV for the residential land was to remain as $550,000.00 and the residential land was still vacant for more than six months in 2026, the VRLT would increase to $11,000.00 in 2027, which is 2% of the CIV.  These rates would only start to apply to residential land used and occupied as the deceased’s PPR after the expiration of 3 years from the date of death.

It is crucial for the Executor/Administrator to determine if residential land owned by the deceased is subject to VRLT or whether any exemption applies and then make appropriate notification to the State Revenue Office (if required).  Any unpaid VRLT would expose the Executor/Administrator to personal liability if distribution of the Estate is made without consideration to any VRLT liability.  Confirming whether an exemption applies to the residential land and ensuring the residential land is dealt with, within the timeframe which the exemption applies, mitigates the risk of penalties to the Estate and personal liability by the Executor/Administrator.

If you require advice in relation to any potential VRLT liability or require assistance with dealing with residential land in a deceased estate, please contact our office on (03) 9707 1155 or via email at admin@wslegal.com.au.