diff --git a/WHATSNEW b/WHATSNEW
index fafe31c8d..18747aa1f 100644
--- a/WHATSNEW
+++ b/WHATSNEW
@@ -81,6 +81,9 @@ Fixed bugs:
 * Regression: concat fixlastline="true" should not have applied to
   nested text, but did in Ant 1.7.0. Bugzilla 42369.
 
+* Regression: ant.version was not passed down in <subant>.
+  This worked in Ant1.6.5, but not in 1.7.0. Bugzilla bug 42263 
+
 Other changes:
 --------------
 * <script> now has basic support for JavaFX scripts
diff --git a/src/main/org/apache/tools/ant/Project.java b/src/main/org/apache/tools/ant/Project.java
index ef89ffc89..ae5bc76c6 100644
--- a/src/main/org/apache/tools/ant/Project.java
+++ b/src/main/org/apache/tools/ant/Project.java
@@ -309,6 +309,12 @@ public class Project implements ResourceFactory {
         setAntLib();
     }
 
+    /**
+     * Set a property to the location of ant.jar.
+     * Use the locator to find the location of the Project.class, and
+     * if this is not null, set the property {@link MagicNames#ANT_LIB}
+     * to the result
+     */
     private void setAntLib() {
         File antlib = org.apache.tools.ant.launch.Locator.getClassSource(
             Project.class);
diff --git a/src/main/org/apache/tools/ant/taskdefs/Ant.java b/src/main/org/apache/tools/ant/taskdefs/Ant.java
index 67af0503e..fcbe41066 100644
--- a/src/main/org/apache/tools/ant/taskdefs/Ant.java
+++ b/src/main/org/apache/tools/ant/taskdefs/Ant.java
@@ -199,9 +199,9 @@ public class Ant extends Task {
         getProject().copyUserProperties(newProject);
 
         if (!inheritAll) {
-           // set Java built-in properties separately,
-           // b/c we won't inherit them.
-           newProject.setSystemProperties();
+           // set Ant's built-in properties separately,
+           // because they are not being inherited.
+           newProject.initProperties();
 
         } else {
             // set all properties from calling project
diff --git a/src/tests/antunit/taskdefs/subant-test.xml b/src/tests/antunit/taskdefs/subant-test.xml
new file mode 100644
index 000000000..4ac34758c
--- /dev/null
+++ b/src/tests/antunit/taskdefs/subant-test.xml
@@ -0,0 +1,26 @@
+<project default="antunit" xmlns:au="antlib:org.apache.ant.antunit">
+
+  <description >
+    Test that subant properly sets various properties
+  </description>
+  <import file="../antunit-base.xml" />
+
+  <target name="tearDown">
+    <delete file="binaryAppendDest" />
+    <delete file="encodeStringDest" />
+  </target>
+
+
+  <target name="assertProperties">
+    <au:assertPropertySet name="ant.version" />
+    <au:assertPropertySet name="java.home" />
+    <au:assertPropertySet name="java.class.path" />
+  </target>
+
+  <target name="testAntVersion">
+    <subant inheritall="false" target="assertProperties">
+      <fileset file="${ant.file}" />
+    </subant>
+  </target>
+
+</project>