Gifting property can be one of the most meaningful acts of love and the laws are supportive of it

By Yip Wai Fong

Love can take the form of gifts from the giver wishing to convey to the receiver an understanding that the latter is important in the giver’s life. What is a better gift to express that message than the gift of an immovable, stable and transferable property? 

Other than an outright purchase for a beloved, one also has the option to transfer the ownership of existing property. The legalese for such transfer is plain and simple – transfer by way of love and affection. 

“Property transfer by way of love and affection is not limited to residential properties (and neither is there) a limit on how many properties can be transferred,” said Harvindar Singh, lawyer and sole proprietor of Harvindar Singh & Co. 

As a matter of practice, such property transfers are potentially exempted from both the Real Property Gains Tax (RPGT) and stamp duty. Only three sets of relationships are anointed for the special exemptions – between spouses, parents and children (including step-children), and grandparents and grandchildren who are Malaysian citizens. 

“RPGT is payable by the selling or giving party at the disposal of property. In essence, it is a tax on the profit generated on the disposal. Under the Real Property Gains Tax Act 1976, transfers between (the parties above mentioned) are deemed to have no gain and no loss on the disposal. Therefore no RPGT is payable. However, the transferor must be a Malaysian citizen,” clarified Harvindar. 

Advocate and solicitor Ching Wei Tong from Teh Kim Teh, Salina & Co added that the transferor will not be taxed RPGT regardless of whether the property is still under financing or free from encumbrances, so long as the transfer is among the three sets of relationships. 

“It is not uncommon in practice for the parties to do a love and affection transfer even if the property is encumbered. The (transferor) can either pay off the loan and redeem the property from the bank before the transfer or proceed with refinancing the property,” said Ching.

However, when it comes to stamp duty, there are varying degrees of exemption for each set. For husband and wife, Ching said that there will not be any stamp duty chargeable. But the exemption will not apply to a non-Malaysian transferee. 

Between parents and children, there will be a 50% stamp duty on the property’s market value. Between grandparents and grandchildren, there will not be stamp duty remission so the full stamp duty according to the property’s market value is chargeable.

However, if last year’s Budget 2023 proposal by the previous Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz on property transfer is made into law, the corresponding stamp duty for all three sets of relationships will be fixed at a nominal rate of RM10. 

“There is no official gazette from the newly formed government to date. Hence, it is yet to be in force,” said Ching when asked about the matter. 

Now, what happens to property transfer other than the three sets of relationships above, for example between an uncle and a nephew? 

“For relationships outside of love and affection transfer, the parties can enter into a sales and purchase agreement to formalise the transfer. Full stamp duty on the transfer is chargeable for such a transaction and also the RPGT will be taxable on the disposer if the property is acquired for less than five years,” said Ching. 

While the exemptions decreed by laws may not be as boundless as love, it nevertheless makes asset transfer between immediate family members relatively uncomplicated and inexpensive when compared to a number of other countries. One of the main savings lies in the fact that Malaysians are not required to pay inheritance tax. 

“There is currently no inheritance tax payable in Malaysia. Historically, there was inheritance tax but it has been repealed. Compared to Japan, Korea, UK and the US, these jurisdictions have relatively high tax rates for inheritance. Hence, the transfer of properties between close family members in Malaysia is relatively uncomplicated and inexpensive,” said Ching. 

Gifting a property may best express the protective quality of love, where the property symbolises a form of safeguard to the beloved. It could also be a  meaningful transfer of a storehouse of cherished memories, containing a piece of the legacy that has defined the giver or the receiver’s life. By itself, it is not an adequate instrument of love, except when combined with the giver’s true affection.

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