Property market mainly unaffected

Property negotiators feel the budget will not have an adverse effect on the market because the measures announced were only aimed at curbing abuse and collecting tax due on property transactions.

In the budget speech, Finance Minister John Dalli announced changes in the way property tax is charged as part of the government's drive against tax evasion.

In one measure, provisions for the exemption of duty on documents and on capital gains in the case of business restructuring are being repealed.

Under another measure, when property acquired causa mortis is sold it will be subject to as much tax as any other property. The purchase value considered for calculating gains will be the value declared.

The managing director of Frank Salt Real Estate, Joe Lupi, said that, broadly speaking, the budget measures would not harm the market, which he described as quite healthy.

However, the removal of the tax exemption on capital gains from inherited property might leave a mark, he said. He explained that the prices of property could be stabilised through an increase in supply but the exemption could have the opposite effect.

He believed the current wave of speculation on property was temporary and that the prices would stabilise next year, although they would not go down. The managing director of Cassar and Cooper Real Estate Agents, Michael de Maria, who also served as president of the Association of Real Estate Agents for several years, said he believed that any negative effect of the measures announced in the budget would be temporary "...until people get used to the system.

However, overall, I don't think the budget measures will affect the market badly. For instance, the one per cent tax which now has to be paid on the promise of sale agreement is not a new tax and neither is it an added tax".

Promises of sale related to sale of property or any other transfer will now have to be notified to the Inland Revenue Department and one per cent provisional duty will be paid. This will then be deducted from the total payment made on the deed of sale.

One negative aspect, Mr de Maria said, was that the government had decided to stop making a distinction between property purchased before and after 1992 for capital gains tax purposes.

In cases of property inherited before November 25, 1992 (the date of repeal of succession duties), there will be a final tax of seven per cent on the proceeds.

In his budget speech, Mr Dalli said that, at present, when calculating tax on capital gains on property purchased before November 25, 1992, these are computed as a proportion of the number of months between that date and the date of sale and the number of months between the date of purchase and the date of sale. With immediate effect, this method of computation will cease and all gains will now be subject to tax.