NEWS | Wednesday, 20 February 2008

Of rent and succession sagas

David Darmanin

Collectively, realtors and estate heirs have mixed feelings over last minute proposals the Nationalist Party offered with regards to reforms in succession tax rates and Malta’s outdated rent laws.
In the last national budget, taxes related to property inherited by spouses were waived off. In its electoral manifesto, the PN is now proposing that this benefit is also extended to the children of the deceased.
Also on the cards is a reform in existing rent-laws, by which many property owners receive a state-controlled yearly pittance from tenants, a number of whom have inherited an unalterable title of lease from generation to generation. Property owners are also irked because of the legal responsibility they have to carry to maintain the property they hold legal ownership of.
Although the manifesto did not mention concrete specifics on a holistic rent reform, a commitment to waive tax due on income generated from such rentals has been published. Also, the PN promised the introduction of a scheme that allows maintenance to be carried out in a fairer way.

Trafford Busuttil, President of the Federation of Estate Agents (FEA), told Business today that as much as the federation is always in favour of any fiscal measure that elevates or removes tax burdens on property, he is also of the opinion that “when an inherited property is sold, the 12 percent Final Withholding Tax on the difference between the value declared on the ‘Causa Mortis’ and deed of sale should be removed, as was the case a few years back. This measure will entice more inheritors to place property on the market.”
Busuttil described the income tax relief on price-controlled rental property as a “step in the right direction”, but with “very limited effect”, as the FEA suggests an extension of this measure to all rented properties. Short of that, a few months ago the FEA proposed to government “a more encompassing fiscal measure, being a 12 per cent final withholding tax on all revenue generated from property rentals. A similar solution was offered to host families and we believe that it should be extended to rental property owners.”
On her part, a director for the family owned estate management company B.Tagliaferro and Sons Ltd, expressed doubt on the PN’s credibility in putting such proposals forward. Over the years, the heirs to the various estates represented by B.Tagliaferro and Sons had no less than 115 properties requisitioned from successive governments. “My family had great faith in the Nationalist Party on any reforms that had to be carried out in rent laws,” she told Business Today. “However, today, after a 20-year long wait, we are rather cynical on proposals for such a development – particularly when it’s being offered on the eve of an election.”
Economist Karm Farrugia seems to concur with the feeling that the current rent system is the cause of a series of social injustices. From a technical viewpoint, he explained that “one must recognise that this is a very tough problem to solve. This issue goes beyond economy, as one must take into account the social implications entailed in reforming existing rent laws. Before we consider any changes, we must first of all recognise the fact that price-controlled rental properties often cause a number of social injustices. Secondly, the matter needs to be resolved over a number of years, as drastic measures may lead to further injustice. Thirdly, the two main political parties need to be in agreement over the way forward.
“Originally, price-controlled rentals carried a humanitarian scope. Since heredity of lease title is many times abused nowadays, there needs to be a system allowing the wheat to be separated from the chaff. We may need a good 10 years before we cut off heredity abuses, although the injustice this causes is evident to us all.
“A well-known millionaire for example, resides in a beautiful Sliema apartment for which he pays a miserable Lm60 per year. The same millionaire rents out a small shop to a barber who he has taken to court to increase his rent from Lm500 to Lm1,000 yearly.
“Now, the PN proposal is one way of letting tenants pay the same amount while landlords earn more. Unfortunately it doesn’t solve the problem. Let us not forget that this proposal came out just before the elections, while Alternattiva Demokratika have been mentioning it for years now.”
On proposed reform to taxes linked to heredity, Farrugia said: “the way succession tax works now, since the reform carried out in the last budget, involves a tax-free transition of properties inherited by the spouse. As we stand now, once the inheriting spouse passes away, heirs holding legal title to the property would be liable to tax. There are various loopholes to this, and it is rather evident that there was something wrong in the way the law was initially amended.
“Inheriting spouses for example, were often selling off the inherited residence, knowing that they would not be subject to succession tax or capital gains, and then purchase another property registered directly on their heirs’ name, most often their children.
“With this proposal, they (the PN) have realised that their initial amendment was flawed. When it comes to lifting succession tax, it has to be either for all or nothing. There was only one way of getting round this issue.”
Edgar Mifsud, Managing Director for Citypro, a real estate company that exclusively deals with property in Valletta, seemed to offer a more positive perspective on the state of affairs. “This is a step in the right direction,” he said on succession tax reforms, “since it is unlikely that parents enjoy the fact that their children would have to pay tax on property left to them. Besides, such reforms would guarantee a faster and more controlled release of property into the market.”
Mifsud was firmer on rent law reform. “There’s always been a conflict between tenants and landlords with regards to who gets to repair property that falls into price-controlled rent,” he said. “This problem is long overdue, and has led us into a situation where legislation in 2008 is restricting developments and leaving property in a dilapidated state. I have often visited properties in Valletta inhabited by people whose roof is only waiting for a storm to collapse. I hope that these aren’t proposals that are simply aimed to attract the electorate but ones that are intended to resolve longstanding issues.”