Selling Property and Real Property Gains Tax (RPGT) Planning

Written by: Sr. KC Law

When we sell any of our property from the year 2019 and beyond, we will need to pay “Real Property Gain Tax (RPGT)”. When we buy property, we pay “Stamp Duty” at the market value of the property. In this article, we highlight the prudent actions needed for effective RPGT planning.

It is crucial to know the facts and make informed decisions; being ignorant of the laws and regulations is extremely costly and time-consuming to rectify.

Example 1

Mr Lim inherited a 3-storey shophouse in Kuala Lumpur from his late father via a valid Will. (Read more: Getting a Property Valuation On Your Inheritance, When and Why?)

He may plan to sell it immediately or 5 years after getting the “Grant of Probate” from the High Court.

Basic equations:

  1. Acquisition Date = Date of demise
  2. Holding period in year(s):

Disposal Date – Acquisition Date

  1. Chargeable Gain:

Disposal Price – Acquisition Price – Allowable Expenses

Read more: Real Property Gains Tax (RPGT) in Malaysia

From the above, the inherited 3-storey shophouse Acquisition Price or Market Value on the date of demise is unknown since there is no property valuation done.

Mr Lim is street smart and prudent, so he plans to determine the unknown Market Value at Date of demise by himself (Do It Yourself = DIY) to save cost.

Here are probably some DIY methods he might have considered:-

Method 1. Get an indicative price for similar property 3-storey shophouses in similar location advertised in the local newspaper(s) for the property by property agents. Cut out the advertisement and use it as Acquisition Price.

Method 2. Get the advertised prices for a similar property advertised in online property advertising portals. Print it out and use it as Acquisition Price.

Method 3. Call up several active real estate agents/negotiators in the area of the inherited property. Record down their verbal average indicative prices as Acquisition Price.

The above DIY methods seem to be very simple and cost-effective to determine the Acquisition price (Market Value) at Date of demise (inherited date).

The question is – Is this Acquisition Price (Market Value) at Date of demise derived from above methods valid or can it be used as Market Value of the property for submission to Inland Revenue Board (IRB) for RPGT tax purposes when Mr Lim sells his 3-storey shophouse immediately or in the future?

The answer is, unfortunately NO.

Why can’t these pieces of evidence be adopted?

The market value from the above methods is just hearsay indicative asking prices and cannot be used for RPGT tax calculation nor submission.

It is an offence punishable by imprisonment and/or fine should anyone who is not a Registered Valuer with the Board of Valuers, Appraisals, Estate Agents and Property Managers of Malaysia were to sign a valuation report stating the market value of any property for any specific date in Malaysia.

Now, let’s look at the correct and legal ways available to property owners/beneficiaries like Mr Lim who wish to get their property market value on the inherited date or date of demise or transfer date.

Situation 1- Owners/Beneficiaries who plan to sell/dispose of the property immediately after getting the “Grant of Probate”.

  1. Engage a Registered Valuer to conduct a property valuation and draw up a valuation report of market value at the date of demise.
  2. The date of demise is taken as the date of acquisition or date of valuation.
  3. The Holding Period is Date of Disposal – Date of Acquisition.

Situation 2 – Owners/Beneficiaries who plan to keep the inherited property after getting the “Grant of Probate” or sell after 5 years.

  1. After getting Grant of Probate, transfer/ register the beneficiaries name(s) into the title by Memorandum of Transfer (MOT) or Deed of Assignment for a non-title property.
  2. Engage a Registered Valuer to conduct a property valuation and draw up a valuation report on the date of registration of the title or assignment date on the Deed of Assignment for a non-title property.
  3. The inherited property will now have a market value at acquisition date which is the date of registration on the title or date of Deed of Assignment.

In the above example, our objective is to get market value for the property/inherited property at acquisition date under 2 situations that is valid and can be used in the future for RPGT tax planning purposes.

The above RPGT planning is a prudent and recommended way for all property owners who plan to sell their property for 2019 and after.

Real Property Gain Tax Malaysia

Example 2

What happens if owners of property who sold their property but felt that the RPGT calculated by the authority does not reflect the market value?

They can make an appeal with a detailed property valuation report from a Registered Valuer on the affected property within the specified appeal date.

However, this is a reactive approach which may in some cases not work in the favour of the owners.

The understanding of the above will help property owners/beneficiaries overcome the challenges in managing RPGT proactively when selling their property.

Should you need further advice or clarification. Please contact us at 03-7785 1888 or email us at action.v1039@gmail.com

KC LAWSr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyors Malaysia, Member of Malaysia Institute of Estate Agents and Member of Business Valuers Association of Malaysia.

Getting a Property Valuation On Your Inheritance, When and Why?

Written by: Sr. KC Law

While it is a trying time to cope with losing a loved one, as the beneficiary, you must be clear-headed when dealing with his/her property and assets. In this article, we suggest a protective measure for your real estate inheritance. Do read on.

What is a will?

A will is a legal document that determines how a person’s wealth will be distributed among his/her beneficiaries after he/she dies.

When a person dies with a valid will, a grant of representation is given to a person granted by the authority to deal with the assets and liabilities of the deceased.

The person granted with this representation is known as the “Executor”. The executor’s role is to administer the wishes of the deceased according to what is spelt out in the will.

The executor will need to appoint a lawyer to get a “grant of probate” from the High Court of Malaya before he/she is allowed to transfer/distribute the estate or assets to the beneficiaries based on the deceased will. This would take approximately 3-4 months

On the other hand, if the deceased did not leave a valid will, the next of kin may apply for the “letters of administration” in order to be appointed as the administrator of the deceased’s assets. This would take approximately 2 years. The distribution of assets will be in accordance with the Distribution Act 1958 and Distribution (Amendment) Act 1997.

At the same time, it is crucial for you as the beneficiary or the executor to get the property valued by a registered property valuer as soon as you can in order to have a “value stamp”.

Why is this so?

Other than enabling a fair distribution of estate and assets between beneficiaries, it also helps in your future Real Property Gains Tax (RPGT) filing should you as the beneficiary wish to sell the property immediately or at a later date. The RPGT chargeable gain is calculated by taking the current fair market value minus the fair market value at the date of the person’s demise.

As of 2019, there is a 5% RPGT on chargeable gain for individuals who dispose of their property acquired or inherited for more than 5 years. Whereas, for property owned by companies, there will be a 10% RPGT on the chargeable gain.

In order to reduce or eliminate uncertainty and errors in RPGT calculation during the disposal of your inherited property in the future, it is definitely wise to get a property valuation done for each of your inherited property.

Since valuation is not an exact science, it is difficult to accurately determine the fair market value of a property retrospectively, since the sentiment and market environment would have been different.

Therefore, having a property valuation done as soon as possible gives a more accurate assessment of the property value at that point in time.

To all property beneficiaries, real estate agents selling inherited properties, estate, will and trust lawyers and property holding companies, Action Valuers provide property valuation report service to address the above needs and help you manage these uncertainties. For more information, do contact us at 03-77851888.

About the author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyors Malaysia, Member of Malaysia Institute of Estate Agents and Member of Business Valuers Association of Malaysia.