I am interested in purchasing my first property, what tax is due by first-time buyers?
Any document involving a transfer attracts a 5% stamp duty on the sale price of the property. Therefore, the default rate is 5%. However, there are instances where the duty is reduced to 3.5%. A purchaser is eligible for this reduced duty if (1) no Acquisition of Non-Residents permit is required, and (2) the purchaser acquires the immovable property for the purpose of establishing therein his or her sole ordinary residence. In such a case, the purchaser would be liable to pay 3.5% duty on the first €150,000 of the purchase price and the balance will attract a 5% duty.
Furthermore in accordance with the Budget measure on the Exemption of Duty for First Time Buyers the below applies:
First-time buyers who have never owned any immovable property, directly or indirectly, have up to the 30th June 2015 to enter into a promise of sale and up to the 30th September 2015 to register the final deed of sale.
When should the stamp duty be paid?
A provisional payment equivalent to 20% of the total stamp duty is to be paid upon the registration of the promise of sale. The remaining 80% is to be paid upon the signing of the final deed of sale.
Should a promise of sale be registered for it to be valid?
Yes, a promise of sale is not valid unless it is registered with the Commissioner of Inland Revenue with 21 days of its signing.
What are the duties of a Notary Public during the period between the signing of the promise of sale agreement and the signing of the contract of sale?
The main duties of a Notary Public include carrying out all necessary searches, advising the potential buyer/s as to the legal title of the immovable property being purchased, ensuring that there are no hypothecs or outstanding debts on the immovable property, and also of keeping both parties informed and involved throughout the whole process.
Once all the searches have been carried out, the legal title has been proved and all the conditions of the promise of sale (for instance, conditions relating to bank loans, building permits, AIP permits, and so on) fulfilled, the contract of sale is published by the purchaser’s Notary, who then has the obligation of registering the contract with the Public registry within 15 days from the date of the contract.
I intend to sell my residence, is any tax due?
If you have owned and occupied the property as your own residence for a period of at least three consecutive years, then you are exempt from paying tax. If not, the tax is due at different rates depending on the date of acquisition of the property and under what title it was acquired.
I intend to sell a property which I had inherited, is any tax due?
If the property was inherited after the 24th November 1992, then tax is due at the rate of 12% of the excess of the transfer value over the value attributed on the declaration causa mortis. On the other hand if the property was inherited before the 24th November 1992, then tax is due at the rate of 7% of the transfer value.
I purchased a property less than 12 years ago and I intend to sell it. However, I have never resided in this property. Is any tax due?
If you had purchased the property in the last five years, the tax due will be at the rate of 5% of the selling price. If you had purchased the property more than five years ago but not before the 1st January 2004, the tax due will be at the rate of 8%.
I intend to sell a property which was donated to me a few years ago, is any tax due on such transfer?
If the property was donated to you more than five years before the date of transfer, then PTT shall be chargeable at 12% of the excess of the transfer value over the acquisition value.
What is the new rate of final withholding tax on property?
As from the 1st January 2015, the system consisting of both 12% final withholding tax on the transfer value and 35% tax on the profit or gain has been replaced by one final withholding tax of 8% on the value of the property transferred. There are, however, 5 exceptions:
1. A transfer of property not forming part of a project that is made not later than five years after the date of the acquisition thereof, the tax thereon shall be chargeable at the rate of 5% of the transfer value. Where the transferor is a company that had acquired the property by means of a transfer that qualified for the intra-group exemption, it shall be deemed to have acquired the property on the date on which the property had previously last been acquired by a company by means of a transfer that did not qualify for the intra-group exemption. This rate will not apply where the said property was at any time within the period of five years preceding the transfer, owned by a person related to the transferor and the property formed part of a project at such time. An individual is deemed to be related to the transferor if the transferor is a body of persons of which the said individual is, directly or indirectly, a shareholder, partner or member. Two bodies of persons are deemed to be related persons if they are, directly or indirectly, controlled or beneficially owned as to more than 25% by the same persons
2. A transfer of property that was acquired by the transferor before the 1st January, 2004 and in respect of which a notice of a promise of sale or transfer relating to that property has not been registered before the 17th November, 2014, the tax on a transfer to which this article applies shall be chargeable at the rate of 10% of the transfer value. In the case where such notice of promise of sale has been given before the 17th November, 2014, the tax chargeable shall be at the rate of 12% of the transfer value.
3. A transfer of property that was immediately before the transfer owned by an individual, or co-owned by two individuals, who had declared in the deed of the acquisition of that property that the said property had been acquired for the purpose of establishing therein or constructing thereon his or their sole ordinary residence, and the transfer is made not later than three years after the date of the acquisition thereof, the tax thereon shall be chargeable at the rate of 2% of the transfer value: Provided that this shall only apply where the said individual does not own any other residential property at the time of the transfer. The notary who receives any deed of such a transfer shall record in the deed a written declaration by the individual so transferring that he does not own any other residential property at the time of the transfer and the notary shall warn the said individual of the importance of the truthfulness of such declaration.
4. A transfer of property situated in Valletta, that was acquired by the transferor before the 31st December, 2018, and such property has been restored and /or rehabilitated after the date of acquisition in accordance with any planning permit issued for this purpose by MEPA, and on completion of such restoration and, or rehabilitation works are certified as satisfactory by MEPA before the 31st December, 2018, the tax on the transfer shall be chargeable at the rate of 5% of the transfer value, provided that the said transfer of property is made not later than five years from the 31st December, 2018.5. A transfer of a property which has been restored in accordance with any scheme issued by MEPA for the restoration of grade 1 or grade 2 scheduled property, or a property situated in an urban conservation area, shall be chargeable at the rate of 10% of the transfer value. However, in the case of transfers of such property made on or after the 1st January, 2015 in respect of which a notice of a promise of sale or transfer relating to that property has not been registered before the 17th November, 2014 the tax thereon shall be chargeable at the rate of 7% of the transfer value.
Are there any tax exemptions?
Yes, the following circumstances lead to tax exemptions:
• A donation made by a person to his spouse, or to his descendant or ascendant in the direct line, or to the spouse of any such descendant or ascendant, or, in the absence of any descendants in the direct line, to his brother or sister or to a descendant of his brother or sister, or to a philanthropic institution.
• A transfer of property that has been owned and occupied by the transferor as his own residence for a period of at least three consecutive years immediately preceding the date of transfer and provided that the property is disposed of within twelve months of vacating the premises or such other period or condition as may be prescribed and provided that such property is declared by the transferor to be his main residence through an election made to the Commissioner in such manner and subject to such rules as may be prescribed.
• The assignment of property between spouses consequent to a judicial or consensual separation or a divorce.
• The assignment of property that formed part of the community of acquests between the spouses or was otherwise owned in common between them, to one of the spouses on the dissolution of the community, or the partition of such property between the spouses or the surviving spouse and the heirs of the deceased spouse. Provided that on a subsequent transfer of the said property, the date of acquisition of the share assigned as aforesaid shall be the original date when the property was acquired by the two spouses.
• A transfer of property from one company to another forming part of the same group.
• The transfer of property upon the incorporation of a business or a partnership en nom collectif as a going concern into a limited liability company.
• The settlement of property on trust, or the distribution or reversion of property settled on trust, or the transfer of all the property of a trust involving only a change in the trustee of a trust and where there is no change in the beneficiaries or in the beneficial interest.
• A transfer of property by a company to its shareholder or to an individual related to its shareholder in the course of winding up or in the course of a distribution of assets pursuant to a scheme of distribution.
Does a garden or a garage form part of my own residence for the purpose of the exemption?
‘own residence’ is defined as the principal residence, owned by the taxpayer or his spouse, being a dwelling house which has been the owner’s only or main residence, including land which the individual has for his or her own occupation and enjoyment with that residence as its garden or grounds up to an area (exclusive of the site of the dwelling house) not exceeding 2 times the area of the house and transferred through the same deed with the principal residence. A garage attached to or underlying a house or a block of flats, or a garage of not more than 70 square metres situated within 500 metres of the dwelling house, and transferred through the same deed with the principal residence shall be deemed to be included as part of the residence.