Transfers of immovable property : fiscal implications under the Income Tax Act

Abstract

Transfers of immovable property fall within the scope of the charging provisions of the Income Tax Act and the Duty on Documents and Transfers Act. Article 5(1)(a)(i) of the Income 'l'ax Act charges capital gains tax on "gains or profits arisingfrom any transfer of the ownership or usufruct of any immovable property or the assignment or cession of any rights over such property. " The chargeable capital gain shall be computed in terms of the Capital Gains Rules, 1993. However, radical changes are currently underway in Malta with respect to the method of computation and the imposition of this tax. This dissertation includes a detailed analysis of what constitutes a 'transfer' of immovable property or any rights over such property, as well as the fiscal implications underlying such transactions. Various transactions give rise to taxable capital gains, and for the purpose of this dissertation, transfers of immovable property have been classified into three areas: transfers inter vivas, transfers causa mortis and the settlement of immovable property into a trust. This dissertation also includes an analysis of the practical side of such transactions. Various examples of tax computations are illustrated, as well as certain difficulties which might be encountered in practice, arising from alternative possible interpretations of the law. Reference is also made to the radical amendments which are currently underway with regard to the taxation of transfers of immovable property.