We often receive queries from individuals where a property was jointly purchased with loved ones or business associates, or even with an ‘ex’ and subsequently, one party wishes to transfer their portion of the property so there will now be just one owner. Another common scenario is where a husband / parent wishes to transfer the property to his wife or children while still alive.
In this article, we explore some frequently asked questions relating to situations that do not involve a sale of the property.
What are the documents needed to effect such a transfer?
An “MOT”, also known as “Instrument of Transfer”, is the legal instrument prescribed by the National Land Code 1965, which is used to effect the transfer of property with individual title or strata title. For a property without individual title or strata title issued, a Deed of Assignment (by way of transfer) is used to effect the transfer of the property.
Is a Sale and Purchase Agreement needed if no money is changing hands?
A Sale and Purchase Agreement (SPA) is not needed if no money is changing hands. However, it can be useful to have a simple SPA drawn up on a ‘friendly-party basis’ to capture the transfer, especially for the future disposal of the property to a bona fide third party purchaser.
What if the property is still subject to bank loan / charged to the bank?
If the property is still charged to a Bank, the outstanding loan must first be fully redeemed with cash OR from a completely new loan facility. Getting a new loan could mean a new (and lower) loan interest rate, but it will also involve additional legal fees and stamp duty (0.5% on the borrowed amount) on the loan documents.
The solicitor will then simultaneously register both the bank charge documents (for the new loan) and the MOT at the land office. It is also likely that the bank will insist for an SPA to be signed.
What is the time needed for such a transfer?
The whole process might take between 3 to 4 months, or more, depending on the tenure type of property, i.e. freehold or leasehold, whether there is a loan to redeem, or whether a developer is involved the property where the strata title is not yet issued.
Will state authority consent be required for such a transfer?
For a leasehold property, state authority consent will be required for the transfer. The state authority consent will take between 2 to 3 months depending on the location of the property.
What is the stamp duty involved in such a transfer?
You are also required to pay for the stamp duty to effect the transfer. The rates of stamp duty under the Stamp Act 1949 are as follows: –
- First RM100,000 – 1%
- Next RM400,000 – 2%
- Next RM500,000 – 3%
- Amounts above RM1,000,000 – 4%
The stamp duty will be based on the property’s current market value which will be valued by the Inland Revenue Board and not based on original purchase price.
However, there are full or partial stamp duty exemptions if the transfer is done between spouses, parents and children:
|Father / Mother||Child||50%|
|Child||Father / Mother||50%|
Be mindful that transfers between siblings, friends, boyfriends and girlfriends, or grandparents are subject to the full stamp duty rate.
Will the transferor need to pay RPGT on such a transfer?
Under the Real Property Gains Tax Act 1976 (RPGT Act), there is a 100% RPGT exemption in the transfer of property between family members by way of love and affection between spouses, parents and children. The transferor is deemed to have received “no gain and suffered no loss” and not subject to any RPGT.
Apart from the above, any forms of transfer between siblings, friends, boyfriends and girlfriends, or grandparents are not entitled to apply for the RPGT exemption.
What is the RPGT implication to the transferee / recipient in the subsequent disposal?
The transferee should be aware that he is deemed to have acquired the property at the acquisition price that was previously paid by the transferor. Therefore, upon subsequent disposal by the transferee, he might be exposed to significant capital gains, especially if the property was previously owned by the transferor for a long amount of time.
It is always advisable to seek professional legal advice to first determine your exact situation after conducting the updated searches and a review of your documents, in order to assess the multiple variable factors and costs that would apply to your specific situation.
This article was written by Shawn Ho (Partner) & Suzanne Fam (Senior Associate) from the property & tax practice group of Donovan & Ho. Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021. We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. We also advise on property transactions and real-estate related tax planning. Feel free to contact us if you have any queries.