Labour pledges overhaul of succession tax that protects family inheritances

Prime Minister Robert Abela has announced an overhaul of Malta's succession tax laws, introducing a series of exemptions and payment deferrals designed to prevent families from being forced to sell inherited property to cover tax bills, alongside a package of economic measures targeting small businesses and the self-employed.

Speaking on Labour's Isma' Dean podcast on Saturday afternoon, Abela said the succession tax reforms were the product of months of work with legal and fiscal experts and were grounded in social justice rather than electoral popularity.

This comes after Nationalist Party leader Alex Borg promised to abolish succession tax in three separate forms and announced new economic niches he said would generate hundreds of millions of euros for Malta and Gozo.

"I am not going to sell the principle of the Labour movement just to please and, in reality, do a disservice to our people," he said.

The family home

Under the current system, when both parents die and leave their matrimonial home to a child, the child pays no succession tax on that property. Abela confirmed this exemption will remain untouched. The same applies where a child inherits the family home, and the parents had been living in a care home before their death, an anomaly Abela said Labour would fix.

Under current law, elderly parents who move into a care home can cause their children to lose the exemption because the parents are no longer officially resident at the property. Labour's reform would ensure that a home that was the parents' original residence continues to be treated as their ordinary residence even if they later moved into care.

A second inherited property

Abela walked through a detailed hypothetical to illustrate the current system and what Labour proposes to change. He described a couple, Joe and Mary, who own their matrimonial home and two apartments, each worth €300,000 on today's market. Both apartments were bought after 2004, which is relevant for how the transfer tax is calculated.

If Joe and Mary sell one of the apartments during their lifetime, they pay 8% transfer tax on the full value, €24,000 on a €300,000 property. Joe then dies, followed shortly by Mary, who does not have time to file a separate declaration. Their son Mark files a single notarial declaration, the kawża mortis, covering the inheritance from both parents.

Under current law, Mark pays nothing on the matrimonial home. On the inherited apartment, he pays 5% succession tax on its declared value: €5,000 on each €100,000, totalling €15,000. If he files and pays within six months, he receives a rebate. If he pays within a year, no penalty applies. If he waits beyond a year, interest begins to accrue.

If Mark then sells the apartment shortly after at the same declared value, having made no profit, he pays nothing additional; the €15,000 succession tax already covers his obligation. If he sells at €350,000, a profit of €50,000, he pays 12% on the profit only, meaning €6,000, bringing his total tax to €21,000.

Moving into the inherited property

Labour's reform would introduce a new exemption: if Mark chooses to live in the inherited apartment as his ordinary residence, he pays no succession tax at all, not deferred, but fully exempt. When he eventually sells that property as his residence, having lived there for three years, he also pays no capital gains tax. Abela said this exemption would be equivalent to the one already in place for the parental matrimonial home.

Renting the inherited property

If Mark does not move in but chooses to rent the apartment out, Labour would not abolish the tax obligation but would defer it, interest-free and without penalties, either until he sells the property or until seven years have passed from the date of the parents' death. The 5% rate would be locked in at the declared value at the time of inheritance: €15,000 on a €300,000 apartment.

When he eventually sells at €350,000, he pays 12% on the €50,000 profit, €6,000, plus the deferred €15,000, totalling €21,000. Abela contrasted this with what would happen under the PN's proposal to abolish the succession tax, in which the default 8% transfer tax would apply to the full sale value: €28,000 on a €350,000 sale. Under Labour's reform, Mark saves €7,000.

Three children, three apartments

Where parents leave three separate apartments to three children, whether as a universal inheritance divided among them or as specific legacies assigning one apartment to each child, each child who constitutes the inherited apartment as their ordinary residence pays no succession tax and no capital gains tax when they eventually sell. Abela said this applied when the property is left as a straight inheritance.

Surviving spouse

Abela said a further anomaly would be corrected. Under current law, if Joe dies first and Mary inherits his 50% share of the matrimonial home, she pays nothing. But if she also inherits a share of non-matrimonial property, such as the apartment, she does pay succession tax on that share. If she then dies and Mark inherits, he faces another layer of tax. Labour would ensure the surviving spouse's inheritance of such a property is exempt from succession tax, removing that double burden.

Lifetime donations

For parents who wish to give property to their children during their lifetime, Labour proposes raising the stamp duty exemption threshold from €250,000 to €1,000,000. Any property donated to a child worth up to €1,000,000 would attract no stamp duty. Where the donated property will serve as the child's ordinary residence, there is no tax, regardless of the property's value.

Where parents are demolishing their own home and rebuilding it with separate units for their children, Labour would offer a 50% VAT refund on construction costs in those circumstances.

Self-employed and small businesses

Abela also announced a package of measures for small and medium enterprises. Corporate income tax for companies with a turnover of up to €1,000,000 would be reduced from 35% to 25%, he said, a first step with further reductions to follow. For self-employed individuals, the social security contribution rate would remain at 15% to protect their eventual pension entitlement, but they would receive a cash grant equivalent to 5% of the contribution, bringing the effective rate to 10%.

This would return between €627 and €1,428 annually to self-employed workers, depending on their income. A separate SME Boost measure would offer zero income tax for the first three years for young people starting a business, on the first €30,000 of income.

Abela says PN’s succession tax proposals would backfire on families its supposed to help

Abela was sharply critical of the Nationalist Party's own succession tax proposal, which he said would backfire on the very families it claimed to help. He argued that abolishing the succession tax entirely, as opposition leader Alex Borg had proposed, would mean that any subsequent sale of an inherited property would fall under the default 8% duty on documents and transfers. On a €300,000 apartment, that means €24,000, more than the €15,000 currently owed under succession tax, and €7,000 more than what Mark would pay under Labour's reformed system.

"The notaries themselves are telling me: Prime Minister, this will have big negative consequences for families," he said.

He also attacked the PN's €1,200 worker bonus proposal, saying a basic calculation, 300,000 workers multiplied by €1,200, produces a cost of €360 million, not the €110-130 million PN had cited.

He said the party had then amended its figures, having initially done the calculation on a workforce of 300,000 rather than the 200,000 figure Labour had used for its own super bonus.

"How are they competent to keep an economy going to sustain what they have in mind if they cannot even do the correct costing?" he said.

He added that the PN's proposed tax cut would cost around €360 million and would be incompatible with Malta's fiscal commitments to the European Commission, potentially forcing a future PN government to cut other measures or face a rebuke from the Commission.