Budget 2022 highlights for property buyers: UCA grants and tax cuts, extension of stamp duty reduction for first-time buyers

Yesterday, the Government announced its budget for 2022, and included among the new measures were several incentives aimed to stimulate the property market in Malta.

The budget speech also confirmed that the stamp duty exemption for first-time buyers on the first €200,000 of their property value will be extended once more.

Promoting the conservation of older buildings

One of the most notable measures introduced in next year’s budget is the exemption from capital gains tax and duty on the first €750,000 of the value of properties which:

  • were built over 20 years ago and vacant for more than 7 years
  • are located in an Urban Conservation Area (UCA)

This exemption shall also apply to new properties built in a typical and traditional Maltese style and architecture.

Qualifying properties for which a promise of sale (konvenju) has already been entered into shall also benefit from this measure as long as the final contract has not been signed yet.

New incentives for first-time buyers

First-time buyers who purchase properties qualifying for the scheme above can also apply for a grant of €15,000 to help restore their home, while buyers of similar properties in Gozo will receive a grant of double the amount at €30,000.

Moreover, current and prospective owners of qualifying properties may alsobenefit from a VAT refund of up to €54,000 on the first €300,000 spent on refurbishment works.

These measures will enter into effect from the 12th of October 2021 for a period of three years.

Other measures for property buyers

The government has also announced that it will extend again the stamp duty exemption offered to first-time buyers on the first €200,000 of the value of the property, while second-time buyers will benefit from a refund of duty on the first €86,000 of the new property (the first €150,000 for people with disability or their guardians).

Transfers inter vivos of residential properties in Gozo will be chargeable at a rate of duty of €2 for every €100, or part thereof.

The reduction of stamp duty rate to 1.5% on the first €400,000 of the property value and lowering of income tax on capital gains to 5% on property transfers will not be renewed and shall expire in June 2022.

Increase in property donations as clients take advantage of reduced stamp duty before deadline

Traditional Maltese door knocker on a blue door. Notaries report an increase in clients donating property to take advantage of reduced stamp duty.

UPDATE: The government plans to extend by another 4 months the measure which reduced stamp duty to 1.5%. Acquirers will have until the end of July to sign a promise of sale and benefit from the reduced rate.

We’ll keep you posted about further announcements.

The first weeks of 2021 have brought about a significant increase in the number of clients donating property to their descendants in order to benefit from the fiscal incentives introduced by the government last year, namely lowering stamp duty to 1.5%, which is set to end in July 2021.

With regards to taxation, donations made by parents in favour of their children were always exempt from tax. Stamp duty for the beneficiaries of the donation, on the other hand, was a different story. 

Until a few months ago, the normal rate for stamp duty was either 3.5% or 5% depending on the type of property being transferred. The government reduced stamp duty to 1.5% in a bid to stimulate the economy at the height of the corona pandemic, prompting a rush among clients seeking to save thousands of euros on their tax bill before the incentive expires.

An incentive that interests youngsters as well as their parents

With regards to taxation, donations made by parents in favour of their children are exempt from tax. Stamp duty, on the other hand, is a different story.

In the light of the reduced stamp duty currently in effect in Malta, as well as the increase in the upper threshold of the property value that is eligible for a duty exemption, the present situation offers a win-win scenario for parents and their offspring.

Both parties will save money when transferring property via donation; this ensures the best possible start to a new chapter in life, whether you’re flying out of the nest or helping your children build their own.

How does donating property figure in with legacy planning and making a will?

Transfer of property from parents to their children is more often than not a matter reserved to wills. However, any inherited property which is not the residence of the deceased is subject to 5% stamp duty as the law currently stands.

The unique circumstances faced by families in Malta during the past year, and the government’s response to address difficulties, have opened up a potentially brief window whereby donating property confers significant savings over transferring them through a will.

More importantly, your children or loved ones can become homeowners (or run a business, or manage property you already intended for them to have one day) with the least pressure on their finances and for life goals.

Donating property in 2021; how to secure the best outcome for your family members

As you can see, donating property is probably the best strategy at the moment for families who wish to pass on a residential or commercial property to descendants without burdening them with additional expenses.

In fact, many notaries are experiencing a “rush” in clients who want to take advantage of the current scenario and transfer property to their children at the reduced stamp duty of 1.5% instead of the usual 3.5–5%. This could translate into immediate savings of thousands of euros depending on property value. 

However, the government’s fiscal incentives are due to expire soon. The looming deadline has led to a considerable spike in inquiries about property donations by interested parties and increased notarial work in this area. 

The reduced stamp duty will apply to all property transfer agreements signed by the end of July, so now is the perfect time to consider property donation as a means to ensure your family’s comfort and financial security throughout the new year and beyond.

If you are interested in knowing more about donating property to family members, especially if your children and loved ones qualify for tax benefits to first-time buyers, send me an email to discuss your needs. 

Make sure to check out this guide to selling and buying immovable property, which lists all the steps and documents you need, as well as this overview of the standard fees involved.

Budget 2021: Improved Incentives for First Time Property Buyers

UPDATE: The government plans to extend again the measure which reduced stamp duty to 1.5%. Acquirers will have until the end of July to sign a promise of sale and benefit from the reduced rate.

We’ll keep you posted about further announcements.

The existing scheme to aid buyers in purchasing their first home is being extended, with the property value eligible for duty exemption increased from the current upper-limit of €175,000 to €200,000.

This incentive and others affecting the real estate sector have been announced on Monday in the Budget 2021 speech. Yesterday’s budget also extended the reduced duties announced earlier this year as part of the COVID-19 economic regeneration plan.

Reduced stamp duty of 1.5% and Final Withholding Tax of 5% for Inter Vivos transfers will apply to promise-of-sale agreements made until March 2021, and until the end of 2021 for the signing of contracts of sale.

Other property incentives

Duty on property donations is also being eased, with the first €250,000 in the value of a property being exempt, an increase from the previous threshold of €200,000. Amounts in excess of €250,000 shall be subject to duty at the rate of 3.5%

The rate of duty on the acquisition of residential properties is being reduced to 3.5% on the first €200,000.

Reduction in duty for second-time buyers is also being extended to acquisitions made throughout 2021. This scheme allows individuals who sell their first residence to purchase another home to claim a duty refund of up to €3,000 if it is their sole property.

Extension of reduced duty rates on the acquisition of properties located in an Urban Conservation Area (UCA) or in Gozo. The current duty of 2.5% (down from the previous rate of 5%) will continue to apply during 2021

During 2021, all profits derived from the assignment of rights on a promise of sale relating to immovable property will be taxed at a final tax rate of 15% increased from the first €100,000.