The Malta Developers Association has declared it is four-square behind the property tax exemption clause that has led notaries to refuse to apply the new tax rates due to its “ambiguity”.
The measure to entirely remove stamp duty and capital gains tax on the transfer of old and vacant properties and those found in an Urban Conservation Zone (UCA) on up to 750,000 of the property price, first announced by Finance Minister Clyde Caruana in October during his parliamentary speech announcing the Government Budget for 2022, was initially well received.
Belair Properties director Iggy Zammit described it as “another good measure that encourages investment in UCAs and redevelopment of older property, which is very much needed,” while Zanzi Homes and QuickLets co-founder and CEO Steve Mercieca gave a characteristically ebullient response, calling it “fantastic”.
However, the legal notice on the exemption from taxes for the transfer of old and vacant properties and those found in an Urban Conservation Zone (UCA), which typically refers to traditional town cores, was found to have “serious shortcomings” by the Notarial Council.
In a unanimous decision, the Notarial Council on 1st December directed its members to continue applying previous tax rates for final deeds of sale signed until clarifications are issued by the Government, citing a 1st November meeting with the Finance Minister where the scheme’s long term operation was discussed.
“This is to ensure that notaries remain in a position to direct parties in a precise manner, without either party to the contract or the notary themselves being subject to penalties due to serious shortcomings in the scheme’s implementation, and to guarantee legal certainty at all times.”
It pointed out that the way the current legal notice is phrased could result in penalties or additional tax due also in future transfers, for which the parties to the contract, along with the notary, remain responsible
“This is due to a lack of clarity in the legal notice on how the scheme would operate and the eventual repercussions on future transfers.”
The Nationalist Party also criticised the conditions tied to the scheme, calling them “doubly perverse” because they limit the improvement and renovation of abandoned properties as well as create tensions and scope for confrontation and legal cases between buyer and seller”.
PN spokesperson and candidate Peter Agius criticised the Government, saying its grand promises are not backed up by action.
Mr Agius identified the contentious clause as the one detailing how the incentive may be forfeited if the property is demolished or split into more units than it had at the time of sale. Forfeit would mean that the total of the amount of unpaid taxes (due to the exemption) would become payable.
Significantly, clause 6.3 of Legal Notice 461 of 2021 states that “the person who acquired the property at the time that the relief from income tax and from duty on documents and transfers was allowed and, if different, the owner at the time that the condition mentioned in this rule is in any way breached, shall be jointly and severally liable for the payment of the amount”.
Mr Agius explained that this makes both the buyer and seller liable for the whole sum due.
Meanwhile, the Malta Developers Association said it not only fully agrees with the scheme but also claimed credit for proposing it, and said the controversial clause is the only way to guarantee a level playing field for those working in property in development.
Contacted for comment, acting president Michael Stivala says: “It stands to reason that anyone who wants to profit off property should pay all the taxes due. The scheme is for those who want to buy a beautiful, traditional house to restore and possibly live in. If a developer wants to split the house into two units, for example, or demolish it and develop the site, it is only fair that they should pay accordingly.”
He continues: “It’s a financial incentive to make sure that old, abandoned, characteristic properties are used. It is not an incentive for developers – it is an incentive for the general public.”
Citing the conservation of Malta’s urban environment as one of the MDA’s raisons d’etre, Mr Stivala explained that the practice is a normal one, already in use for those properties obtained through public financial support.
“Take housing support, for instance,” he says. “If the beneficiary sells it, they need to pay 25 per cent of the value back to the Housing Authority. It’s a basic principle – if the Government is helping you, and you later take that help and use it commercially, for financial gain – you need to reimburse the assistance initially provided.”
When asked whether the MDA agrees with the Notarial Council and the PN in their criticism of the clause holding both buyer and seller jointly and severally liable, Mr Stivala says that no doubts exists in the MDA’s mind.
“From our side it is clear. If the rule is breached, it’s the person who owns the property at the time of discovery of breach that is liable.”
In other words, the person who today purchases a property under the scheme, saving thousands through the exemption, and who sells it to a developer down the line, is the one who needs to pay the taxes.
He says that the notary simply includes a clause in the contract so that the owner is obliged to pay the sums due on eventual resale.
Whether that interpretation will emerge through further clarifications to the legal notice remains to be seen. In the meantime, buyers of property that is eligible under the scheme are having their notaries take note so that they may benefit from a refund once the measure takes effect.
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