Reduced tax and duty on transfers of immovable property

LNs published on the reduced rates of tax and duty on the transfer of immovable property and the relaxation of the first-time buyer scheme conditions.

Further to the Government’s presentation of its Economic Recovery Plan for Malta on 8 June, two legal notices were published on 15 June to temporarily reduce the rate of final property tax and stamp duty on transfers of property to 5% and 1.5% respectively, on the first €400k. Changes were also made to the provisions governing duty payable by first-time buyers as so announced.

Reduced rates of final property tax and duty

The measure applies to transfers inter vivos of immovable property situated in Malta or any real right over such property made on or after 9 June 2020 but before 1 April 2021, provided that the notice of the final deed is filed with the Commissioner for Revenue by 30 April 2021.

Thus, the reduced final property tax and duty rates apply also to properties currently covered by a promise of sale agreement as long as the final deed is made within the stipulated timeframe.

The publication of the legal notices follows the posting by the Revenue of explanatory Guidance Note on its website on 9 June expounding on the application of the measure.

Legal Notice 241 – Exemption from Tax on Certain Property Transfers Rules, 2020

LN 241 provides that the reduced rate of final property tax applies to transfers of immovable property that would otherwise be subject to tax at the rate of 8% or 10% in terms of Article 5A of the Income Tax Act. [8% is the default rate of tax for transfers of immovable property and 10% tax generally applies in case of property acquired before 1 January 2004.]

Such qualifying transfers are now subject to tax at the reduced rate of 5% on the first €400,000 of the transfer value. The excess value of the immovable property will be taxed at the applicable rates of tax of 8% or 10%.  Standard procedures apply for the payment of the tax by the notary publishing the deed of transfer. 

The benefit of the LN could be clawed back by the Revenue within 5 years if transfers of immovable property forming part of a structured arrangement are made solely or mainly for the purposes of inflating such benefit. Structured arrangements include, for example, transfers of immovable property in portions between the same persons.

Legal Notice 240 – Exemption of Duty in Terms of Article 23 (Amendment) Order, 2020

Through LN 240, the stamp duty rate otherwise chargeable in terms of law on the purchase of immovable property in Malta will be calculated at 1.5% on the first €400,000 of the higher of the consideration and the market value of such property, the remaining duty being calculated at the applicable duty rate (normally 5%).

Such reduced rate does not apply to persons who require a permit for the purposes of the Immovable Property (Acquisition by Non-Residents) Act (Cap. 246).

The reduced rate of duty cannot be applied in conjunction with the exemption under Article 32C of the Duty on Documents and Transfers Act on the same transfer, applicable to donations of immovable property by a person to his descendants in the direct line for the purpose of the donee establishing therein or constructing thereon, his sole ordinary residence.

Similar to provisions governing income tax, claw back provisions apply in the case of acquisitions of immovable property with an abusive intent.

First-time buyers – Relaxation of conditions

The duty scheme applicable to first-time buyers (currently applicable until 31 December 2020) has been tweaked to allow co-owners of other properties with a relatively low value to benefit from the scheme. The scheme provides for an exemption from duty on the first €175,000, or on a pro-rata portion in case of co-acquisition, of the aggregate value of the consideration paid for the acquisition of residential property by first-time buyers. Until 8 June 2020, the exemption applied only if the property in question was the first property acquired inter vivos.

As from 9 June 2020, through LN 240, the scheme applies also to buyers of residential property even if they had previously acquired inter vivos an undivided share of immovable property representing less than 25% of the real value of the whole of such property. As stated by the Minister of Finance in the presentation of the Recovery plan, such measure is aimed at persons who did not qualify as first-time buyers due to them being co-owners of a property.

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