A Budget measure to remove succession duty on buildings transferred from parents to children will only apply to residential property, The Sunday Times has learnt.

Finance Minister Tonio Fenech clarified the issue after Prime Minister Lawrence Gonzi was asked by Labour leader Joseph Muscat during a televised debate on Friday whether the Budget measure referred to all property.

When contacted yesterday, Mr Fenech said the measure only covered residential property as outlined in the 2008 Nationalist Party manifesto.

The removal of succession duty on residential property transferred from parents to children as a result of inheritance or donation was the eighth pledge in the manifesto.

On Friday Dr Muscat said lack of clarity in the reference to the measure in the 2013 Budget had “jammed the market” and he called on Dr Gonzi to clarify the matter. The Prime Minister’s response was to say that the party would do so in the coming days.

According to Malta Developers Association president Michael Falzon, the Budget speech gave the impression the measure applied to more than residential property.

“If this is the case it will represent a chunk of lost revenue for public coffers and this is why the Government has to clarify matters,” Mr Falzon said, adding uncertainty was the “biggest enemy” of the property market. The financial estimates for this year, presented with the Budget, show that Government was estimating a drop of around €1 million in revenue from document duty on the transfer of property.

Document duty, projected at €95 million, covers all tax raised when property is transferred, including ordinary sales. Mr Fenech explained the drop in revenue was the net result of various changes in the property market and not just the removal of succession duty on inheritance and donation.

What the Budget said

“As from January 1, 2013 the succession duty on the transfer of property as a result of inheritance and donation by parents to their children will be removed.”

ksansone@timesofmalta.com