Finance Bill 2023: Stamp Duty & RPGT Updates in Conveyancing Transactions

Finance Bill 2023 & Explanatory Statements

The Malaysian Government first announced on 24^th February 2023 the revised National Budget for the year 2023 (“Budget”) themed “Developing Malaysia MADANI” with a focus on the six core values of Sustainability, Prosperity, Innovation, Respect, Trust and Compassion. On 3^rd April 2023, the Finance Bill 2023 (Bill No. DR 4/2023) was passed by Malaysia’s Dewan Rakyat (House of Representatives) which seeks to enforce the tax measures announced in the Budget. As at the time of writing, the Finance Act 2023 has yet to be gazetted and implemented.

With the extensive measures proposed in the Budget, this article aims to highlight the key amendments and updates contained in the Budget and Finance Bill 2023 affecting real estate and conveyancing transactions moving forward.

1. Stamp Duty

• Stamp Duty for Transfer of Property by way of Love and Affection

It is proposed that there will be a 100% stamp duty exemption for any instrument of transfer of property by way of love and affection which takes effect from 1^st April 2023 onwards. These are applicable for transactions between: (i) parents and children; and (ii) grandparents and grandchildren, for the first RM1 million of the property’s value. There will be an additional 50% stamp duty remission on the remaining excess of more than RM1 million of the property’s value. The relevant exemption and remission only apply where the recipient of the property is a Malaysian citizen.

• Stamp Duty Exemptions for First-Time Home Buyers

The Government will continue to fully exempt stamp duty for first-time home buyers for residential property valued at less than RM500,000 up until the end of 2025. Additionally, there will a 75% stamp duty exemption for first-time home buyers where the property is valued between RM500,000 to RM1 million up until 31^st December 2023.

1. Real Property Gains Tax (“RPGT”)

• Transfer of Assets between Former Spouses

It is proposed that the transfer of assets between former spouses shall be treated as a “no gain, no loss” transaction*, i.e. where the disposal price of a real property is deemed equal to its acquisition price. This will be applicable where:

• there is a court order in consequence of the dissolution or annulment of the marriage; and
• the transferor is a Malaysian citizen.

*This will come into effect upon the enactment and operation of the Finance Act 2023.

Presently, such “no gain, no loss” transactions are not extended to transfers between former spouses and would otherwise be subject to the prevailing RPGT rates, which currently are as follows:

• Limitation on the Transfer of Asset by an Individual to a Controlled Company

Under the present law, the transfer of assets owned by an individual* into a controlled company for a consideration consisting of shares in the company or substantially** of shares in the company and the balance of a money payment, is treated as a “no gain, no loss” transaction.

*or by the wife of the individual or by an individual jointly with his wife or with a connected person, by a nominee for the individual, a nominee for the wife of the individual or a nominee for both, or by a trustee for the individual, a trustee for the wife of the individual or a trustee for both.

 **the term “a consideration consisting substantially of shares” means a consideration consisting of not less than 75% of the shares (as per Paragraph 1(4), Schedule 2 of the Real Property Gains Tax Act 1976)

 Currently, the above tax treatment of such transfer applies regardless of whether the controlled company is resident in Malaysia or not. It is proposed that the scope of the above “no gain, no loss” treatment will be limited to the transfer of assets to a controlled company which is incorporated in Malaysia (i.e. the “no gain, no loss” treatment will no longer apply in circumstances where the controlled company is incorporated outside of Malaysia). This amendment will come into effect upon the enactment and operation of the Finance Act 2023.

Concluding Comments

The above measures introduced in the Budget and Finance Bill 2023 showcases the Government’s aim in promoting economic growth within Malaysia through maintaining existing as well as introducing new tax measures to spur movement and economic activity in the local real estate and property sectors. Such new measures will be of particular interest for Malaysian citizens who wish to make use of the available tax reliefs and exemptions when planning for the transfer and distribution of their assets.

Author: Shawn Zachary Tan, LL.B. (Hons) Queen Mary University of London (UK), Middle Temple.

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