Gifting of real properties between immediate family members

IT is common for family members during their lifetime to transfer at no consideration or gift real properties to one another. The usual transfers are between spouses, from parents to children and from grandparents to grandchildren. Such gifting transactions are subject to the provisions of the Real Property Gains Tax Act 1976 (RPGTA) and the Stamp Act 1949 (SA).

Real property within the RPGTA means land situated in Malaysia and any interest, option, or other rights in or over such land. Land includes anything on the surface or below the earth, buildings attached to the land, standing timber or trees growing on the land and land covered by water.

RPGT implications

Gifting in these circumstances involves the disposal and acquisition of a capital asset. Any transfers (not being gifts) between spouses will not attract RPGT on the grounds that the transfer is deemed to take place at a disposal value equal to the acquisition price paid by the spouse transferring the real property. At the subsequent date when the acquiring spouse sells the property, the capital gains will be computed based on the acquisition price by the spouse who transferred the property.

Effectively, there is a deferral of the RPGT to a later date when the receiving spouse sells the property. However, the acquisition date will move to the date of the transfer, and this will affect the RPGT rate on the subsequent disposal by the receiving spouse.

Where the transaction involves gifts between husband and wife, parent and child, or grandparent and grandchild, it will not attract RPGT. The reason being the donor is deemed to have received no gain and suffered no loss on the disposal if the donor is a Malaysian citizen.

Here the recipient is deemed to acquire the real property at an acquisition price equal to the acquisition price paid by the donor. At the subsequent date when the recipient sells the property, the capital gains will be computed based on the acquisition price by the donor. Effectively, there is a deferral of the RPGT to a later date when the recipient sells the property. However, the acquisition date will move to the date of the transfer, and this will affect the RPGT rate on the subsequent disposal by the recipient.

The above transactions still require both parties to fulfill their obligation to file RPGT returns within the stipulated period of 60 days from the date of the transfer/gift. Since these transactions do not involve any consideration wholly or partly in money, there is no necessity for the acquirer to withhold the normal 3% required on such transactions to be remitted to the Director General of Inland Revenue within 60 days.

Stamp duty implications

Transfers of property made between spouses are fully exempt from stamp duty. Transfers between parents and children where the recipient is a Malaysian citizen is 50% exempt from stamp duty. Gifts between grandparents and grandchildren are not exempt from stamp duty and gifts between other family members are not exempt from stamp duty either.

In such transactions, it is safer to have an instrument or agreement stating the clear circumstances of the transfer and have it adjudicated by the Stamp Office confirming that the transaction will not attract stamp duty to avoid any future disputes with the tax authorities. The similar instrument or agreement can be used for the RPGT filing purposes.

Lately gifts are being scrutinised in greater detail by the tax authorities and therefore it is advisable for the donor/transferor and the donee/transferee to have an exchange of correspondence explicitly stating the underlying reasons for the transfer/gifting.