Tax And Duty Schemes On The Transfer Of Immovable Property - Property Taxes

Updated on 16 August 2021

Several schemes allowing for the reduction in duty on the acquisition of immovable property are provided for in the Duty on Documents and Transfers Act, some of which are the following:

The First-time buyer scheme
The Second-time buyer scheme;
The Gozo Property Scheme;
The Urban Conservation Area Property Scheme;
The Transfer of Family Business Scheme.

Additionally, currently both transferors and buyers can benefit from the COVID-19 measure providing for a reduced tax and duty rate of 5% and 1.5% respectively on the first EUR400,000 of immovable property transferred inter vivos. This scheme was initially part of Government's Economic Recovery Plan for Malta, pursuant to the COVID-19 pandemic, and became effective on 9 June 2020 through Legal Notices 240 and 241 of 2020.

Hereunder is a summary of each scheme.

First-time buyer scheme

The incentive is for first time buyers of residential property. If made until the end of 2021, acquisitions of such property are exempt from duty on the first €200,000), or on a pro-rata portion in case of co-acquisition, of the aggregate value of the consideration paid for the acquisition of such immovable property. The incentive applies provided that:

This is the first immovable property acquired inter vivosby such person as evidenced thereby and declared to the notary in writing.
- The ownership of a garage of not more than 30m² is however ignored when determining whether the property being acquired is the first one, as long as certain duty relief has not been availed of at the time of the acquisition of the garage.*
The acquisition is made for the purpose of establishing therein or constructing thereon their sole ordinary residence.
The acquirer does not require a permit in terms of the Immovable Property (Acquisition by Non-Residents) Act.
The relevant duty form reaches the Revenue by 28 February 2022.

The scheme applies also to buyers of residential property even if they had previously acquired inter vivos an undivided share of immovable property representing less than 25% of the real value of the whole of such property.

An amendment passed in July 2021 made it possible for persons who had acquired a garage of not more than 30m2 before the acquisition of their first 'sole residence' property, to avail themselves of the First Time Buyer Scheme on such latter property as long as certain duty relief was not availed of on the acquisition of the garage.

* Updated on 5 July 2021 following the publication of LN227 on 2 July 2021.

Second-time buyer scheme

The incentive is for individuals who, by 31 December 2021, replace their sole residential property with another within 12 months from vacating the first. Duty on the first €86,000, or the pro-rata portion in case of co-acquisition, of the value of the replacement property is refunded. Such incentive applies provided that:

The replaced property has been owned and occupied as own residence for a period of at least 3 consecutive years immediately preceding the date of transfer.
The acquirer does not require a permit in terms of Immovable Property (Acquisition by Non-Residents) Act.
Replaced property must have qualified for a reduced rate of duty upon acquisition for the purpose of establishing therein or constructing thereon the sole, ordinary residence of the transferor.
The replacement property is acquired by the transferee inter vivosfor the purpose of establishing therein or constructing thereon their sole, ordinary residence but not through a donation from close relatives as defined.
At time of acquisition, the transferee must not own any other residential property acquired inter vivosother than the replaced property.
If the replaced property had qualified for the duty exemption under the First Time Buyer Scheme certain duty exemptionor as a donation granted for the purpose of establishing / constructing a sole, ordinary residence, 5 years must pass before this incentive can be availed of.
Whereas the relevant duty form must reach the Revenue by 28 February 2022, the claim for duty refund must be made in writing within 6 months from the contract.

Residential property in Gozo

The incentive is for individuals who acquire residential property situated in Gozo by the end of 2021, including a garage as defined, or land on which only one residential unit is to be built. This incentive reduces the rate of duty from the standard 5% to 2% on the higher of the consideration or value of the property. Such applies provided that:

The final deed is notified to the Revenue by 28 February 2022.
The acquirer does not benefit from the part-exemption from duty available on the gratuitous transfer of property to descendants in the direct line for the purposes of establishing one's sole ordinary residence.
The acquisition is not made in the course of a trade or business or for the purpose of demolition and construction of more than one unit.

Urban Conservation Area (UCA) Property Scheme

The incentive is for individuals who acquire residential property situated within a UCA or a property that is scheduled by the Planning Authority. The incentive, extended until the end of 31st December 2021, reduces the rate of duty from the standard 5% to 2.5% on the higher of the consideration or value of the property. The incentive shall be forfeited in case of illegal development of the property or if the property is not regenerated according to the characteristics of the area or restoration of the said property. Such incentive applies provided that:

The Revenue is notified by 28 February 2022 together with the submission of the relevant Planning Authority certificates.
No relief under the same scheme has been claimed in respect of any previous transfer of the said property.
The acquirer does not benefit from the part-exemption from duty available on the gratuitous transfer of property to descendants in the direct line for the purposes of establishing one's sole ordinary residence.
The acquirer does not require a permit in terms of Immovable Property (Acquisition by Non-Residents) Act.

Transfer of Family Business Scheme

Under this scheme, duty on the transfer of company shares and commercial tenements in intra-family donations is reduced from 2% or 5% to 1.5% on the real value. Such applies until the extended date of 31 December 2021, provided that the relevant notice is filed with the Revenue by the same date.

The reduction applies in the case of a transfer of marketable securities issued by a company, or of immovable property being a commercial tenement used in a family business for at least 3 years preceding the transfer by donation from an individual to qualifying family members. A qualifying family member refers to one's spouse or partner in a civil union, descendants and ascendants in the direct line and their relative spouses or civil union partners or in absence of descendants to one's brothers or sisters and their descendants.

This reduction in duty applies provided that the donee does not transfer the securities/commercial tenement, inter vivos, within 3 years from the donation and uses the commercial tenement within a business carried on by the donee for 3 years following the donation.

No other exemption or relief from duty may be availed of.

COVID-19 temporary reduction in tax and duty on the transfer of immovable property

On the part of the purchaser of immovable property in Malta, the scheme provides that the duty rate chargeable will be calculated at 1.5% on the first €400,000 of the higher of the consideration and the market value of such property, with the remaining duty being calculated at the applicable duty rate (normally 5% unless qualifying for some other reduced rate). On the part of the transferor of the immovable property, where the transfer would otherwise have been subject to tax at 8% or 10%, the rate of final property tax is reduced to 5% on the same first €400,000, with the excess value taxable at the standard applicable rate.

The measure applies on transfers made by 31 December 2021 or on transfers made until 30 June 2022 where, in the latter case, a promise of sale or promise of transfer agreement is entered into by 31 December 2021. Standard procedures apply for the payment of the tax by the notary publishing the promise of sale or deed of transfer.

The duty reduction applies provided that:

The acquirer does not require a permit in terms of Immovable Property (Acquisition by Non-Residents) Act.
If the property is situated in a special designated area ('SDA'), the acquirer would not have required a permit in terms of the Immovable Property (Acquisitions by Non-Residents) Act had the property been located in a non-SDA.
The reduced rate of duty is not applied in conjunction with the exemption under Article 32C of the Duty on Documents and Transfers Act on the same transfer, applicable to donations of immovable property by a person to his descendants in the direct line for the purpose of the donee establishing therein or constructing thereon, his sole ordinary residence.

Claw back provisions apply for both tax and duty in the case of transfers or acquisitions of immovable property with an abusive intent.

Originally published 5 April 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Malta: Tax And Duty Schemes On The Transfer Of Immovable Property