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

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.