How the Malta Budget 2020 will affect Property Buyers

  • 20.November 2019
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The Malta Government recently issued the Annual Budget of 2020. The Finance Minister, Profs. Edward Scicluna  announced that the GDP is projected to grow by 4.3 percent with a surplus of 1.4 percent. The debt to GDP ratio declining further to 40.4 percent indicating a positive projection for the Maltese Economy.

Every year the Government issues measures related to the property market. In this Podcast I interview Jessica Azzopardi,  Warranted CPA that focuses on International Corporate & Tax Advisory, she is a Holder of an ACCA Qualification and Advance Diploma in International Taxation, a Former Big 4 Firm Senior Tax Supervisor and today a Corporate & Tax Partner at Finanzi Limited and Lecturer for ACCA Tax Professional & Fundamental Modules.

We go through all the changes that affect first-time buyers, second-time buyers, those inheriting property and those speculating.  It a great episode where we uncover many misinterpretations.

The Economic Growth

Welcome to The Real Estate Conversation. The Malta government recently issued their annual budget for 2020. Unsurprisingly, the finance minister, Professor Edward Scicluna, announced that the GDP is to grow by 4.3% with a surplus of 1.4%. The debt to GDP ratio declining further 40.4%, indicating a positive projection for the Maltese economy. Every year, the government issues measures related to the property market, and today I have with me Jessica Azzopardi, warranted CPA that focuses on international corporate and tax advisory. She is a holder of an ACCA qualification and advanced diploma in international taxation, a former Big Four senior tax supervisor, and today a corporate and tax partner at Finanzi Limited and lecturer for ACCA tax professional and fundamental models. Thanks for coming on the show, Jessica.

– Thank you for inviting me, Jeff.

– We’re here to cover the changes and the extension of the property measures announced. The first and foremost which I feel is of major importance is the extension and the increase of threshold of the exemption of stamp duty for first-time buyers. The second significant extension is where stamp duty was reduced for those individuals buying property in Gozo, which was reduced to two percent, and the third extension was for those buying property in urban conservation areas which remains at two and a half percent. All have been extended for another year. Jessica, the latter is straightforward. However, I receive questions about this all the time, and sometimes it is interpreted wrongly. The easy one is, if I am purchasing my first every property, I will not pay stamp duty on the first 175 thousand which would be equivalent to €8,750. If the price is above this amount, the buyer would pay five percent on the remainder of the purchase price. Is the first-time buyer scheme always applicable?

First Time Buyer Scheme Explained

– Well, to start with, for duty purposes, the standard rate is that of five percent. However, the law provides for some exemptions or reduced duty in certain circumstances. One of which, for example, I have the exemption of the first-time buyers scheme. However, it is not always the case. It specifically says it has to be the first immovable property acquired. For example, if you have a garage before you bought your first residential property, then the first-time buyers scheme is not eligible and you can’t be exempt on the first 175 thousand. However, there is the reduced rate of 3.5% on the first 175 thousand if you are acquiring a residential property, even if you have another immovable property, for example, like investments, a garage, and any other immovable property.

– That’s second-time buyers scheme?

Second Time Buyer Scheme

– No, I’m talking about the first-time buyers’ scheme. So you have either the scheme, if you’re buying your first immovable property ever, you can apply for the first-time buyers’ scheme. Obviously, it has to be for residential purposes. If, however, you have, for example, a garage, you bought a garage before, you can’t apply for the first-time buyers’ scheme. However, if you’re buying the immovable property for residential purposes, you would still benefit from a reduced rate of 3.5% for the first 175 thousand, and then again for the remaining, it would be at five percent.

– Okay, okay. So that is a new change in the scheme?

– The 3.5 has been there for many years. The new change was the first, first-time buyers scheme, I mean, new change. It was reduced a couple of years ago. What the new change in this year was about the 175 thousand that, in both instances, it was before up to 150 thousand and now it increased to for the first 175 thousand.

– Jessica, another question I get most often is related to a homeowner that is selling their first property to upgrade their home. If the owner completes the deed on their first property, will they be in a position to benefit from this scheme when they finalize the deed of their new home since, technically, it will be their only residence?

– So you can’t apply for the first-time buyer because it has to be the first immovable property for residential purposes. However, there is the scheme of the second-time buyers scheme where you will initially pay five percent on the, five percent duty on the value of the immovable property, and then you will get a refund of 3.5% on the, on the first 86 thousand.

– Okay, all right, so–

– And this will only be applicable if you sell your former immovable property and you replace it within one year.

Inheritance of Property

– The reduced rate of three and a half percent on stamp duty has been extended on inherited properties, but now will be applicable on the first 175 thousand. Can you explain further?

– Correct. So if it wasn’t the ordinary residence of the deceased but is the ordinary residence of the person inheriting this property, the person who lives there for his residential, as his residential property will be eligible to claim the 3.5% where initially was on the first 150 thousand, it would be 3.5% on the first 175 thousand. So like that, it increased by 25 thousand, and the amount over that value would be at the standard rate of five percent. It’s very good to mention as well, Jeff, about the inheritance of a property that, if it was the ordinary residence of the deceased and it has been inherited by the spouse or the beneficiary are his children, that would be totally exempt.

Transfer of a Promise of Sale

– During the budget, it was also announced that a reduced tax rate will be introduced on the transfer of a promise of sale. What were the exact changes?

– So currently the law says that you have to pay seven percent provisional tax of the profit on the transfer of the promise of sale, That profit that you made will be aggregated with the total income that you made during that year and you will have the, you will deduct the amount of seven percent provisional tax which you already paid and will be taxed at the progressive tax rates. However, as from first January 2020, the government announced a new rate of 15% final withholding tax instead of the seven percent provisional tax where you will be taxed at 15% on the first hundred thousand of profits. It is still not clear all the rules on how they’re going to be announced because we are still waiting for legal notice for further details about this change.

– Okay, so this will be for people speculating, people buying a property to basically, to flip it, so to speak, or?

– There aren’t any rules as of today–

– As such.

– But basically, when you buy and sell on, so you haven’t signed a contract, it is still on Konvenju, the profits made will not be taxed totally at your progressive tax rate, but the first hundred thousand would be at 15% final withholding tax.

– I think overall it was a positive budget. We’ve hit first-time buyers, second-time buyers. There was a measure mentioned where the government were giving interest-free grants for first-time buyers under 40, those that meet certain criteria, which is a positive thing. There’s also a reduction on the duty for those buying in the urban conservation areas. Overall, it looks positive. The economy is therefore growing, still growing. So thanks for your insight, Jessica.

– Thank you, Jeff.

– It’s a pleasure to have you here. Thank you very much for coming on board.

– Thank you very much.

– That was the budget 2020. Thank you for joining us on this special edition of The Real Estate Conversation.