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How to Calculate RPGT in 2020 for Sale of an Inherited Property

Are you intending to sell a property which you inherited from your late parents? We have put together the calculation with a sample scenario on how to calculate Real Property Gains Tax 2020.
A hand giving a house key to the person's hand with writing

Question:
Hi, my name is Mei Li. I intend to sell a single-storey terrace house in Ipoh which I inherited from my late father on 1 April 2018. The house was purchased by my late father 20 years ago for RM 100,000. Its market value, when the executor of my father’s will transferred its ownership to me, had grown to RM 300,000. As I write, on 1 December 2020, I’d received an offer of RM 350,000 for the property from a potential buyer.

Hence, my question is:

‘How much Real Property Gain Taxes (RPGT) 2020 should I pay in relation to the sale of my inherited property?’

Answer:

There are two scenarios to the above question related to Mei Li’s inherited property.

First, according to Real Property Gains Tax Act 1976 it is a gift of an asset on death, from Mei Li’s late father to Mei Li. In this case, it is deemed that Mei Li’s late father has disposed of his property at RM 100,000, which was his purchase price 20 years ago. Meanwhile, for Mei Li, it is deemed that she had bought over her father’s property 3 years ago for RM 300,000. As the transfer ownership agreement of the property arises from the death of Mei Li’s father, Mei Li is subjected to pay RPGT on the RM 200,000 capital gain of the inherited property.

Read also: 6 Steps to Calculate Your [RPGT] Real Property Gains Tax in Malaysia

Second, it is the disposal of Mei Li’s inherited property to her buyer. The amount of RPGT 2020 Mei Li will be liable for depends on the date of the Sale & Purchase Agreement (SPA) of her inherited home signed between Mei Li and her buyer. Before I move on, the following is a list of the latest RPGT 2020 Rates for disposing of an inherited property:

RPGT 2020 Table

Year Below 3 4th 5th Above 5
RPGT rates 30% 20% 15% 5%

For Mei Li, the date of her acquisition of the inherited property is 1 April 2018, when Mei Li received the title deed to her late father’s house. The date is not according to when her late father first purchased the property 20 years ago. The purchase price, which is to be used to compute Mei Li’s RPGT 2020 payable, would be RM 300,000, and not RM 100,000.

Do you rent out one of your properties in Malaysia? Read also: Tax on Rental Income | 5 Rules You Must Know If You Rent out a Property in Malaysia

Next, if Mei Li and her buyer sign the Sale & Purchase Agreement (SPA) of the inherited house on 1 March 2021, Mei Li’s RPGT 2020 rate would be 30% for Mei Li sold off her inherited property in the first 3 years of holding onto it. Let’s assume that Mei Li would incur RM 3,500 in legal fee for disposing of the inherited property, the amount of RPGT 2020 Calculation Mei Li would pay is RM 10,950.

Date of SPA 1 March 2021
Selling Price RM 350,000
Less: Legal Fee (Allowable Expense) (RM 3,500)
Final Selling Price RM 346,500
Less: Purchase Price (1 April 2018) (RM 300,000)
Chargeable Gain RM 46,500
Less: Sch 4 Exemption:The Higher of: a. 10% of RM 46,500 b. RM 10,000

(RM 10,000)

Final Chargeable Gain RM 36,500
RPGT 2020 Rate Applicable 30%
RPGT 2020 Payable RM 10,950

In this case, Mei Li would net in RM 335,550 from the sale of her inherited property, after incurring RM 3,500 in legal fees and RM 10,950 in RPGT 2020.

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Here is another question:

What if Mei Li and her buyer signed the SPA on 2 April 2021?

If that is the case, Mei Li’s applicable RPGT rate shall be 20%, instead of 30%. As such, Mei Li is able to save RM 3,650 in RPGT payments and thus, will net in RM 339,200 from the sale of her inherited property. These tax savings are made available to Mei Li if she chooses to delay the signing of the SPA by just 1 month.

Date of SPA 2 April 2021
Selling Price RM 350,000
Less: Legal Fee (Allowable Expense) (RM 3,500)
Final Selling Price RM 346,500
Less: Purchase Price (1 April 2018) (RM 300,000)
Chargeable Gain RM 46,500
Less: Sch 4 Exemption:The Higher of: a. 10% of RM 46,500 b. RM 10,000 (RM 10,000)
Final Chargeable Gain RM 36,500
RPGT Rate Applicable 20%
RPGT Payable RM 7,300

Finally, Mei Li has an option to utilise her once-in-a-lifetime RPGT exemption on the sale of her inherited property. If she uses it, Mei Li shall be exempted from RM 7,300 in RPGT 2020 payments to the government. Hence, the question Mei Li should ask is, ‘Does Mei Li have other properties that she could be selling off in the future?’

For instance,

  1. Mei Li decides to sell off the inherited property because she plans to migrate and make a living overseas for the long-term. As such, it would be okay for Mei Li to consider using the once-in-a-lifetime exemption.
  2. Mei Li owns an inherited property which she resides in with her family. She has no interest in real estate investing. In this case, Mei Li could consider using the tax exemption given to her.
  3. Mei Li plans to use the disposal proceeds to invest in bigger real estates in Malaysia for long-term capital gains. In this case, maybe it is ideal for Mei Li to withhold her tax exemption for the sale of a larger property in the future. This means she would have to pay RPGT 2020 for the sale of this inherited property.

You may also want to read: How to Offset Losses From Your Property Investment

Conclusion

There is no inheritance tax in Malaysia. But, with that being said, it is ideal for a beneficiary of inherited property to know the ownership transfer date of the property and its market value at that point in time. This enables you to find out the amount of RPGT payable in Malaysia quickly so that you can enjoy the best tax savings available.

If you are inheriting property from a will or disposing of your property and wish to get as much information as possible before doing so or simply want to consult with the specialist on how to calculate RPGT in Malaysia, you may use Joolah.my A platform that quickly refers you to the very best tax, audit and accounting experts in Malaysia who will help you with your property disposal matter as well as RPGT calculation before declaring your tax to LHDN