Michael Reid, Pembroke
Property tax is state-sponsored extortion
With the advent of the global credit crunch which has brought property prices in most countries crashing down to pre-2004 levels, there have been a number of initiatives by world leaders to help stabilise the markets by providing tax incentives for first-time buyers as well as state-sponsored loans. You would assume that all modern EU states would have implemented similar policies.
I am a 24-year-old Irish citizen who has been residing in Malta with my wife and two children for three years. I have been working all of these three years earning a decent (but by no means big) wage and therefore paying a hefty amount of tax. I was delighted to hear pre-election promises of lowering this high tax from its current level of 35 per cent to 25 per cent but I wasn't at all surprised when this pledge was completely ruled out after the government retained power, the credit crunch being cited as the reason for this. Maybe the government couldn't now borrow enough money to pay for the deficit this lowering of tax would create? Or maybe they were just full of it from the beginning.
Anyway, after three years of saving (despite my huge income tax burden), I finally got enough money together to pay a 10 per cent deposit on a property as well as the huge five per cent stamp duty (huge for a first-time range value of property!). I decided to buy a property which was "on plan" because that was one of the cheaper options and would stretch my budget further even though I would have to invest more money to complete the property by purchasing my own kitchen, etc. I completed the purchase last September with the intention for it to be finished in December of the same year.
As mentioned above, during the time that my property has been under construction the value of property around Europe has been plummeting.
As a first-time buyer who has bought at one of the worst possible times I grew concerned at the inevitable prospect of going into negative equity with my new acquisition, especially when I considered that 20 per cent of the new apartments in my block had yet to be sold.
Even though my property has now been finished for a month I do not yet have enough funds to buy essential things, such as a kitchen, to allow me to give up my rented accommodation and move into it.
You can imagine my great surprise during this period of decreasing property value and negative equity, when I received a letter from the Malta Inland Revenue stating that my property is worth €20,000 more than what I had originally paid for it three months beforehand, and that I have 90 days to start paying the extra €1,000 tax I owe for the property. The basic truth is that if I went to sell my property now there is little to no chance of me getting back what I paid for it. I knew this when I purchased the property and was hoping for at least an increase in the next three years before I had a chance to sell (or feel the wrath of more tax). For this reason I would like to ask the Maltese government how they can find the face to charge me more tax for it!
If I were to get an independent valuation of my property, which would in all likelihood show a drop in value over the last three months, would the Maltese government then give me a rebate of the tax I paid already?
Besides this, I was in the lucky position to be able to put enough funds together to get on the property market in the first place despite the government's best efforts to hinder me with a huge tax burden. I can only wonder what chance normal kids in Malta have when someone who is deemed worthy of being in this country's highest tax bracket has struggled so badly as a first-time buyer?
We all already know that this is nothing more than state-sponsored extortion of some of the most vulnerable people during this economic period. What frustrates me so much is the great probability that nothing will ever get done about it.
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Michael Reid
Apr 26th 2009, 14:07
I would just like to note that I'm not complaining about stamp duty as such, I was complaining about 5% as a young first time buyer with a young family. The valuation of the property by the government can not be defended at all. In a larger country they simply couldn't get away with it.
No doubt the Irish government has rules in place to bend you over backwards in the property market. But there is no stamp duty for first time buyers at all. This gives kids a chance to get on the market and only get taxed as they move up the chain.
As I said if I am deemed worthy of paying the country's top income tax of 35% then why have I struggled so badly to purchase a property which was sold as 'for first time buyers' - I can't imagine what chance people outside of the top tax bracket therefore have of getting on the market at all.
A J Muscat
Jan 10th 2009, 01:56
Mr Reid's experience has little to do with the direction of the property market - it is simply unjust to tax anyone on an arbitrary valuation that has no correlation to the reality on the ground. If the state suspects under-declaration it should simply request an investigation by the tax compliance unit who are known to get to the bottom of things. I strongly urge Mr Reid, a fellow EU citizen, to lodge an official complaint with the EU's representatives in Malta. Hopefully the matter can finally be redressed to the benefit of all victims of the state, Maltese or otherwise.
Barrie John Price(SW)
Jan 9th 2009, 20:06
Mr.M.Reid @ ref: J.Martinelli with due respect Mr.Reid is not complaining he is merely stating facts,and the chances that properties will rise in value is a slim one don't you think? the good times are over we are all in the eu now remember. In the UK is one country amongst others that all properties whether one or two especially those oweing properties outside Brtiain have by law be declared as offshore investment/capital,. work it out ,so is it worthed at the end of the day, would it not be better to invest in one's country and see it grow with a bit of Luck???with a capital L>Please correct me if i'm rong - you seem to know better, i like to hear other's opinion., because at this moment in time my property in the UK is going down the slope fast as banks are reluctant to lend and this latest cut in interest rate will not be enough to get the whole economy on track again
Mike Vella
Jan 9th 2009, 17:06
@ J Martinelli
In a small island like Malta property is generally for life, because wherever you live, you are never more than half an hour away from your workplace.
In a large country like Ireland however, you have to buy and sell property whenever you move jobs. Which basically means that you are taxed just for moving house, even though the value of your final home remains the same.
in effect this is a tax against movement within the EU and is should therefore be illegal since it inhibits free movement, much like the maltese government restricts movement out of the country by means of airport departure taxes and vehicle re-registration taxes.
This is the trick, lure EU nationals to your country with promises of well-paid jobs, fleece them with taxes, strip these nationals from all their dignity and steal their savings and then send them back penniless to their countries of origin and wait for the next wave of gullible fools to keep feeding your coffers.
I wouldnt have minded so much if my money was put to a good cause rather then wasted on million-euro tribunals investigating irish politicians .
J Martinelli
Jan 9th 2009, 16:03
When one RENTS a property, it could be very well for the SHORT term depending on one's preference.
When one BUYS a property, it is most likely for the LONG term.
During ownership of a property, its value may go up or down depending on circumstances some of which are under the control of the owner - maintenance, improvements, etc. There are others which are beyond the control of the owner such as what is happening today. However, in the long run, very rarely does an owner come out at a loss unless he has been unable to honour his commitment with the lending institution.
What Mr. Reid is unfortunately experiencing today is by no means unique and is something being felt the world over. In the USA and Canada, some properties have gone down in value by as much as 18% and they are nowhere near the bottom yet.
On the other hand, when values go up, not by the owner's initiative but through economic conditions and scarcity of land, Mr. Reid will not be writing and complaining.
Each individual country has its own taxing system and the mere mention of 'tax' or 'levy' or 'tariff', automatically causes revulsion.
Albert Bezzina
Jan 9th 2009, 14:44
Ireland? Malta? Oh, I see the connection. Catholic, holier than thou, governments!
lgalea
Jan 9th 2009, 14:09
Michael Reid
After Mike Vella's comment we are all eagerly waiting for your answer.
Is this a case of the pot calling the kettle black?
Mike Vella
Jan 9th 2009, 13:50
In Ireland its an even worse extortion. I was forced to move three times in two years because of work comittments, (asked to move by my employer, the irish government itself). Each time I moved I was charged 30,000 euros stamp duty, so I ended up , after two years, with a property worth half of what I paid initially, and having paid twice the amount of my pay!
In otherwords I worked for two years and ended up paying back to the irish government twice as much as I earnt! How is that for a rip off. To make matters worth the government refused to give us child benefit, citing communication problems with the maltese authorities, leaving my family destitute , with a higher tax burned than income and owing large sums to the irish revenue, not to mention a property worth half the amount I paid for it. So Michael Reid may be better off in Malta after all! Surely Ireland must be on the only country in the EU with a tax burden of 200% !
Darren Galea
Jan 9th 2009, 13:50
This is criminal behaviour on the part of the authorities. Shame shame shame on them! Maybe one day we'll become a country which respects the individual working person instead of viewing him simply as a source of income. Until that day comes expect more of the same from this Kafkaesque administration.
Reg.Pearce
Jan 9th 2009, 13:31
With this glocal recession and seems to worsen before it gets any better, i will never buy any properties whether its Malta,Gozo,Spain or Cyprus till this present uncertainties have settled in our favour, but in the case of buying in Malta one should beware as Mr Darmanin says,there are unforseen taxes to be paid at the end of it all and if say a foreigner thinks he is going to take a big chunk of profit after reductions-Allelulja - think not once but twice over. Thank my God i am renting temporary as all we got to do now is pack up and off we go with no husstle whatsoever.,just look at the BBC news and see whats now happening in Britain its a diabolical situation-Banks not lending, interest rate cut is sub-O will not work, Motor industries cutting work force whats next, it won't be long before these countries will feel the pinch sooner and lets hope much later and this'll not benefit anybody and i can see a downfall in the construction market as one can see for themselves all wround the islands, especially in Gozo where property is suppose to be much lower in prices then Malta.
francis darmanin
Jan 9th 2009, 12:03
Mr Reid
You seem to be unaware of an even worse (and quite possible) scenario.
If you sell your property 5 years or more, after you have purchased it, you will be subject to a final withholding tax of 12 % on the selling price irrespective of whether prices have risen or fallen and if you have made any profit on the sale or not. I
n other words if property prices do not rise consistently you will have pay the 12 % tax although you may be making a loss on the sale. So beware!!
lgalea
Jan 9th 2009, 11:46
Michael,
Can you tell us how much property in Ireland costs and what taxes you have topay including council tax?
This in now way trying to justify our taxes on property.
Peter Murray
Jan 9th 2009, 11:37
Dear Mick.
Welcome to the cloud-cuckoo land that is Malta.We share a lot in common(other than a family-related surname)as the exact same thing happened to me -albeit a long time ago.Initially,one wonders that when we plan to buy property why on earth we bother with any architect's input or valuation -other than the only one that matters for valuation purposes,i.e.the governments'one-as regardless of what our architect determines as valid , established by a professional survey, inexplicably it counts for nothing .It is a pity you never bulit the property yourself and did so illegally,as then all you would have to do is cry poverty and appeal to MEPA to sanction it and then reduce the amount you owe-as thats what the big boys do!The moral of this story to be learned,unfortunately too late for you,is not to agree a price for any property before the governments architect has determined the price-something which no one unaccountably tells you beforehand.Regarding righting this obvious wrong I think you've been here long enough to know this is a nightmare,for as we say back in Cork it would be a case of crossing the river ....in search of water.God Bless you and your family.
DVella
Jan 9th 2009, 11:02
Michael Reid can thank his lucky stars that he didn't have sufficient funds to carry out all the finishing works on the property and install the kitchen . . . . The gross unfairness of the system is felt most by people who purchase a property in 'shell' form and start installing finishes after the purchase. When the Architect from the Inland Revenue finally deigns to turn up to inspect the place, in my case nine months later, no amount of arguing will convince him that the place was purchased in shell form. So the unfortunate buyer ends up paying tax on a value which includes the finishes he has installed himself after the sale! My advice to everybody when buying property in an unfinished state is to leave the property in shell form until the inspection has been carried out!
Joe Formosa
Jan 9th 2009, 10:54
Welcome to Malta, property prices in Malta are so over priced, average in the world is 3 to 4 times average yearly wage, UK and a few other countries have reached 5 to 6 times average wages and now they are dropping, Malta is no different, the difference here is that people are not in any rush to sell and can afford to hold on until the right person comes along. Hopefully the right person will be from overseas and find it cheap in Malta compared to their homeland. You see many Maltese born persons inherit property or have the land given for free, so they can afford it.
Alex P Galea, Surrey, England
Jan 9th 2009, 10:52
So, this racket still continues. As long ago as May, 2007, I wrote:
"....in Malta. Incredulous foreigners and even residents have found to their cost that a buyer may drive a price down but it can be irrelevant when it comes to paying stamp duty. The government architect sets a value for the tax and only he knows how that figure is reached."
Michael Reid's final paragraph is absolutely on the mark.