by Lim Jo Yan and Mak Ka Wai
Generally, an acquisition of property attracts stamp duty exposure and a disposal of property may attract real property gains tax (“RPGT”). Stamp duty is calculated on the market value of the property at the time of the acquisition whereas RPGT is calculated on the profit gained from the disposal of the property.
In the case of a transfer of property between family members by way of love and affection, the law provides for a full or partial exemption of stamp duty and/or RPGT in certain instances.
The stamp duty payable for arm’s length acquisitions is calculated in the following manner:
|Consideration/ Adjudicated Value||Stamp Duty rate|
|Amount exceeding RM500,000||3%|
In contrast, pursuant to the Stamp Duty (Exemption) (No. 10) Order 2007, the law provides for stamp duty exemption for a transfer of property between family members by way of love and affection as follows:
|Mother and/or father||Child||50%|
|Child||Mother and/or father||50%|
Note that ‘Child’ means a legitimate child, a step child or child adopted in accordance with any law. Also, stamp duty is typically paid by the transferee, unless agreed otherwise by parties.
Real Property Gains Tax
With effect from 1 January 2014, the revised RPGT rates for the disposal of real property and shares in real property companies are as follows:
|2014 RPGT Rate|
|Date of Disposal||Companies||Individual (Citizen & Permanent Resident)||Individual (Non-Citizen)|
|Within 3 years from the date of acquisition||30%||30%||30%|
|In the 4th year||20%||20%||30%|
|In the 5th year||15%||15%||30%|
|In the 6th year and subsequent years||5%||0%||5%|
That said, the law provides for 100% exemption from having to pay RPGT in the case of a transfer of property between family members by way of love and affection in the following instances:
(a) transfers between husband and wife;
(b) transfers between parent and child; and
(c) transfers between grandparent and grandchild.
In these instances, the transferor is deemed to have received no gain and suffered no loss and the transferee is deemed to have acquired the property at an acquisition price equal to the acquisition price paid by the transferor together with any permitted expenses incurred by the transferor. This is provided for under Paragraph 12 of Section 7 to Schedule 2 of the Real Property Gains Tax Act.
In practice, this exemption is beneficial to the transferor but may not necessarily be the case for the transferee (in his capacity as a transferor when he subsequently disposes the property) if the transferee disposes of the property within 5 years from the date he acquires the property. For example, Father (“F”) bought a piece of property from A in 2010 at the price of RM500,000. F subsequently transferred the property to his son, C, by way of love and affection in 2011 (which at that time, the market value was RM1,000,000). C subsequently disposed the property in 2014 at the price of RM800,000. C is required liable for RPGT payments of RM300,000.
Note also that there is RPGT exemptions on gains from the disposal of one residential property once in a lifetime to individuals. Please contact the authors if we may be of assistance.