Two New Tax Guidelines – Immovable Property Settled on Trust

The Maltese Inland Revenue Department has recently published two Guidelines to clarify any restrictive interpretation which might have been given with respect to immovable property which would have been acquired by a trust rather than being settled by the settlor directly himself in the trust. These Guidelines were necessary since the Income Tax Act (ITA) […]

Written By ACT Team

On March 28, 2016
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The Maltese Inland Revenue Department has recently published two Guidelines to clarify any restrictive interpretation which might have been given with respect to immovable property which would have been acquired by a trust rather than being settled by the settlor directly himself in the trust.

These Guidelines were necessary since the Income Tax Act (ITA) and the Duty on Documents and Transfers Act (DDTA) solely refer to situations where the immovable property is settled on trust and do not refer to situations in which the property is acquired directly by the trustee, either from cash settled on trust by the settlor or through a loan to the trustee.  These Guidelines clarify that the same fiscal implications would be applicable irrespective of whether the property was settled on trust by the settlor or whether the property was acquired directly by the trustee.

The Inland Revenue Department has thus clarified that immovable property would be deemed to have been settled on trust for the purposes of the ITA if all the following conditions are satisfied.

  1. Monetary amounts (rather than the immovable property itself) were settled into the trust with the sole purpose of enabling the trustee to acquire immovable property, whether or not identified at the time when the amount is settled into the trust; and
  2. The immovable property was subsequently acquired by the trustee within a period not exceeding two (2) years from the date of settlement of the relevant monetary amounts utilised for the payment of the acquisition price of such property; and
  3. The immovable property is acquired by the trustee for the purpose of making it available for use by one or more of the beneficiaries of the trust as their sole, ordinary residence in Malta; and
  4. The beneficiaries of the trust have an irrevocable vested right to receive the immovable property acquired by the trustee; and
  5. The relevant trust instrument specifically provides that the beneficiaries of such trust comprise only persons referred to in article 5(2)(e)(i) of the ITA, whether they are in existence or not at the time of such settlement, in relation to the settlors, such persons being either alone or with the settlors themselves; and
  6. The beneficiaries referred to in paragraph (iii) above shall be persons who are in existence at the time of the settlement of the monetary amounts settled into the trust and utilised by the trustee for the acquisition of the immovable property; and
  7. The trustee provides a statement to the Commissioner indicating the name and identification document of the beneficiaries of the trust and a description of the immovable property acquired or to be acquired by the trustee for the benefit of such beneficiaries.

Thus, the property would still be deemed to have been settled on trust by the settlor even though the said property would have been acquired by the trustee.  The same neutral tax treatment would be applicable on the distributions of the property by the trustee to the settlor’s children or other qualifying family members of the settlor following the settlor’s demise.  Furthermore the cost of acquisition of the property acquired by the trustee is to be calculated in the same manner as if the settlor would have acquired the property himself.

The stamp duty Guideline clarifies that where the immovable property is distributed by the trustees to a beneficiary of the trust and the trustees had paid duty on acquisition of the said property, the immovable property shall be deemed to have been initially transferred by the settlor to the trustees.  Thus upon distribution of the trust property to the beneficiaries, stamp duty will only be due on the increase in the value of the property resulting from the value on the date when it was acquired by the trustees and the value at the time of the distribution to the beneficiaries.

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected].