Business • December 14 2003

Inherited property sales deadline rumour dismissed

By David Lindsay
Rumours had abounded this weekend over the possibility that this week would be the deadline for those selling inherited property to finalise their contracts of sale, if they are to avoid being charged the newly re-introduced Capital Gains Tax on inherited property.
However, when contacted by our sister paper, The Malta Financial and Business Times, this week Parliamentary Secretary within the Finance and Economic Affairs Ministry Tony Abela said, in no uncertain terms, that no such deadline existed.
Instead, Mr Abela explained, Wednesday will see the finalisation of data collection on such properties with a view to determining the number of such promises of sale that exist to date. Once such data were thoroughly analysed, government would be taking a decision on the issue.
And on whether such a deadline would be granted in the future, Mr Abela says, "No promises, but we will be analysing all the data collected and a decision will be taken in due course."
The re-introduction of the 35 per cent Capital Gains Tax on property inherited after 25 November 1992 has perhaps been one of the most spoken about of budgetary measures, of course after the three per cent increase in VAT.
Speaking recently to this newspaper, Joseph Lupi, managing director at Frank Salt Real Estate commented, "One negative point on the Budget’s property-related measures would be that introduced on inheriting property. Before, capital gains taxes were not charged - now they will be.
"This, I feel, was unnecessary as what we should be doing is encouraging those inheriting property to place that property on then market – as we all know the way to reduce prices is to increase supply. This will also compound the problem of vacant housing stock on the Islands."
Operations Manager at Dhalia Real Estate, Andrew Gatt, added, "On the property inheritance tax, I feel there is still a lot of room to sort things out.
"Now that capital gains tax of up to 35 per cent has been added into the equation, people who have signed promises of sale on properties they have inherited and on which final settlement is still pending are going to find themselves out of pocket. Imagine having Lm20,000 in tax added to a konvenju you have already signed?"
The measure is also widely expected to increase the problem of vacant housing stock on the Islands, at time when some 25 per cent of all dwellings stand vacant, compared to an average of just five per cent across Europe.
Bernard Bugeja, managing director at Bernards Real Estate, said: "The introduction of capital gains on the sale of property inherited before and after 1992 came as a surprise to all especially because it been removed altogether. Nobody expected this.
"To make things worse is that it has come into effect with immediate effect. We do have clients who have been bitten in this respect and I think many have been adversely affected. The general feeling is that prices are escalating at too much a rapid rate; but the introduction of this capital gains tax on the sale of inherited properties will only instigate this further as owners will choose to hang on to their property thus decreasing supply and further increasing prices."
However, other property-related budgetary measures have been welcomed by those in the property industry and some economists have suggested that other measures, including the one per cent tax on preliminary sales agreement, could serve to harness speculation and have the long-term impact of pushing prices down.
Estate agents welcomed these latter measures, aimed at closing certain loopholes and plugging speculation. These, they feel, will help stabilise the market and limit the activities of so-called ‘cowboys.’
david@newsworksltd.com