The Malaysian government has recently announced several changes to the country’s economic and tax policies in the Budget 2023. One of the proposals in the budget relates to the stamp duty treatment for the transfer of property by way of love and affection between family members. This article will explore the current position of stamp duty rates, the proposed changes as well as the implication of such proposal.

CURRENT POSITION

As of 1 January 2019, the stamp duty rate for the instrument of transfer of property is based on a tier system which can be seen as follows:-

However, there are full or partial stamp duty exemptions for transfers between spouses[1], parents and children[2] :

It is essential to note that the 50% remission of stamp duty for transfers between parents and children only applies if it operates as a voluntary disposition inter vivos from the transferor to the transferee and the transferee must be a Malaysian citizen[3]. Further, a ‘child’ means a legitimate child, a step child or child adopted in accordance with any law[4].

It is worth highlighting that under the current position of law, the transfers of property between siblings, grandparents or grandchildren are subject to the full stamp duty rate.

PROPOSAL

Under the proposed changes, there will be a full exemption of stamp duty on instruments of transfer of property by way of love and affection between parents and children, grandparents and grandchildren up to the first RM1 million of the property’s value. The remaining balance of the property’s value is subject to ad valorem stamp duty but will be given 50% remission on the stamp duty imposed. This stamp duty treatment applies only to a transferee who is a Malaysian citizen.

EFFECTIVE DATE

The proposed changes are intended to come into effect on 1 April 2023. As a consequence, any instrument of transfer of property that is executed on or after the aforementioned date shall be subjected to the newly implemented stamp duty rates.

EXAMPLE STAMP DUTY CALCULATION

For illustration, if a grandmother transfers a property worth RM1.2 million to her granddaughter, the first RM1 million is exempted from stamp duty in accordance with the proposed stamp duty framework.

The subsequent RM200,000 is subjected to a 4% stamp duty calculation, amounting to RM8,000. Given the remission of 50% on the ad valorem stamp duty imposed, the overall stamp duty payable is only RM4,000 for the transfer of the property from the grandmother to her granddaughter. Under the previous framework, the stamp duty payable on the transfer of the property from the grandmother to her granddaughter will be the full ad valorem stamp duty on the entire value of RM1.2 million which will amount to RM32,000.

IMPLICATIONS OF THE PROPOSAL

The proposed changes are expected to confer benefits upon all Malaysian citizens who intend to receive property from their family members (as between parents and children or grandparents and grandchildren or vice versa) but harbour reservations due to the onerous stamp duty imposed by the current framework. The proposed changes will result in significant cost savings for such transfers.

Under the existing legal framework, the transfer of property by way of love and affection between grandparents and grandchildren is not qualified for any stamp duty exemption or remission and is instead subject to the full stamp duty rate. However, the current proposal appears to have extended the exemption to include transfers of property between grandparents and grandchildren, signifying a significant shift in the stamp duty treatment of transfers of property by way of love and affection. By broadening the scope of the exemption, the government is said to seek to encourage the transfer of property within families and promoting intergenerational wealth.

Despite the above, Budget 2023 makes no mention of spouses and as such, the position for the exemption for transfers between spouses should remain unchanged.

While the proposed changes are likely to be welcomed by many Malaysians, it is important to highlight that there may still be other tax implications associated with such transfers, such as real property gain tax (if any) and that seeking legal advice is essential to ensure that all considerations and factors have been taken into account before one proceeds with any transfer.

This proposal introduced under the recent Budget 2023 is still subject to the relevant laws or orders being passed. Until then, it will remain as status quo.

[1] See order 2 of the Stamp Duty (Exemption) (No. 10) Order 2007 [P.U.(A) 420/2007]
[2] See order 2 of the Stamp Duty (Remission) (No. 2) Order 2019 [P.U.(A) 369/2019]
[3] See order 2 of the Stamp Duty (Remission) (No. 2) Order 2019 [P.U.(A) 369/2019]
[4] See the schedule of the Stamp Duty (Remission) (No. 2) Order 2019 [P.U.(A) 369/2019]

This article is intended to provide general information only and does not constitute any legal opinion or professional advice. For further information and advice on this article and/or on any areas of Corporate and Commercial law, please contact Hoong Wei En at weien.hoong@taypartners.com.my.

Hoong Wei En
Partner
T: +603 2050 1838
weien.hoong@taypartners.com.my

Ooi Hui Tian
Associate
huitian.ooi@taypartners.com.my