When it comes to Maltese inheritance tax, it’s important to know exactly how your estate will be affected. It is essential to have a good understanding of the regulations and laws surrounding inheritance tax in Malta before you plan your will or inherit money from someone else.
In this blog article, we will provide you with all the information you need to know about Maltese inheritance tax and how it can affect your inheritance. Read on to find out more. Ready to speak to an accountant? Why not contact our sister company RHJ Accountants?
The basics of Maltese inheritance tax
Malta’s inheritance tax system is based on a flat rate tax. This means that there is no allowance for any deductions or exemptions. The current rate of inheritance tax in Malta is 8% of the total value of an inheritance. Upon the passing of an individual, any form of assets transferred from the deceased to a recipient will incur an inheritance tax. The valuation of the assets is done at the time of death, not when they are transferred. It is noteworthy that this applies to all assets, including real estate, investments, and even bank deposits.
The rate of inheritance tax levied on beneficiaries varies based on the connection between them and the deceased. A spouse or a child will typically not be liable for this tax, whereas a non-relative or friend could be. In case there is more than one beneficiary, the amount will be equally distributed among them and all will have to pay the same amount. Lastly, if any beneficiary resides abroad, a higher tax rate would apply.
Finally, it is important to keep in mind that any inheritance received is subject to income tax as well. This means that if you receive an inheritance, you may have to pay additional taxes depending on your circumstances.
How is the tax calculated?
In Malta, the amount of inheritance tax levied on a beneficiary is based on the asset’s worth at the time of death. Tax rates for inheritance vary based on the deceased’s relationship to the beneficiary. For example, a spouse or civil partner is exempt from paying inheritance tax. While descendants in a direct line will be charged a reduced rate in comparison to other non-relatives.
The inheritance tax due in Malta is determined by the type of asset inherited and the relationship between the deceased and beneficiary. A tax-free limit of €19,500 applies; any inheritance in excess of this sum is subject to taxation at a rate of 35%.
In addition to this, there are several exemptions and reliefs available to individuals who are liable for inheritance tax in Malta. Exemptions are in place for any property or assets inherited through trusts or left to charitable causes. There is also relief available for particular medical costs or financial debts accumulated by the deceased.
Who is liable for inheritance tax in Malta?
In Malta, all heirs of a deceased person are liable for inheritance tax. This includes both legal and testamentary heirs as well as other beneficiaries of the estate. However, certain exemptions may apply, depending on the particular circumstances. The person responsible for paying the inheritance tax is the executor of the will, or any other individual or institution who is legally in charge of the estate. The executor is responsible for ensuring that all relevant taxes are paid by the due date and for completing any necessary paperwork.
In certain cases, spouses and direct descendants of the deceased may be exempt from inheritance tax. The laws in Malta state that spouses, children and grandchildren of the deceased are not liable for any inheritance tax in Malta. Should the inheritance exceed €20,000 (or equivalent), the remainder shall be subject to inheritance tax. The government of Malta also offers various reliefs and exemptions on inheritance tax, such as the home ownership relief. Inheritors of a house owned by the decedent, and occupied as the main residence for at least three years prior to their death, are eligible to receive this relief.
Additionally, those inheriting property valued at less than €2,300 may be eligible for a reduced rate of 10%. Those inheriting property valued between €2,301 and €3,000 are liable for an inheritance tax rate of 20%, while those inheriting property valued above €3,000 must pay an inheritance tax rate of 30%. Inheriting money stored in a foreign bank account is subject to Maltese inheritance tax. Documentation should be provided to the appropriate authorities to guarantee taxes are remitted accurately.
What are the exemptions and reliefs available?
When it comes to inheritance tax in Malta, there are several exemptions and reliefs available. Some of these include exemptions for spouses, dependents, and charities. In addition, individuals may be able to claim reliefs such as the special contribution for descendants. Inheritance received by a surviving spouse is exempt from Maltese inheritance tax. However, the exemption only applies if the surviving spouse was living in Malta at the time of death. Furthermore, this exemption only applies to up to €52,000 worth of assets.
Those who have inherited the estate of a deceased person may be entitled to a €15,000 exemption from inheritance tax. Charitable donations of up to €20,000 are exempt from Maltese inheritance tax. Donations can be made either directly or indirectly to a charity registered in Malta. Finally, descendants of the deceased may be eligible for a special contribution which allows them to reduce their inheritance tax liability. The contribution is based on the level of relationship between the descendant and the deceased and the amount of the contribution will depend on the amount of money inherited. This contribution is capped at €20,000.
How can I reduce my liability?
When it comes to Maltese inheritance tax, there are a few ways you can reduce your liability. Here are some tips that can help:
- Make use of the reliefs and exemptions available. As mentioned earlier, there are certain reliefs and exemptions which you may be eligible for under Maltese law. Make sure to check what these are and make sure you take full advantage of them.
- Set up a trust. Setting up a trust is one of the most effective ways to reduce your liability for inheritance tax in Malta. By transferring the assets into a trust, you can ensure that they are passed on without any inheritance tax being payable.
- Make charitable donations. Making charitable donations is another great way to reduce your liability for inheritance tax in Malta. Donations to charity are exempt from inheritance tax, so if you make a donation before your death, this could reduce your liability significantly.
- Give away assets while you’re alive. Giving away assets while you’re still alive is another way to reduce your liability for inheritance tax in Malta. By making gifts during life, beneficiaries can avoid inheritance tax upon receipt after death.
- Get professional advice. It’s always a good idea to seek professional advice when dealing with any kind of financial matter, including inheritance tax in Malta. A professional accountant or lawyer can provide valuable advice and guidance on how to best minimise your liability for inheritance tax in Malta.
When do I have to pay?
In Malta, inheritance tax is typically due within 6 months of the deceased’s death. The Commissioner of Inland Revenue can grant an extension on the deadline for paying the inheritance tax upon the request of the beneficiary, in writing. Should this tax remain unpaid beyond the period allotted, the Commissioner of Inland Revenue will impose punitive measures against the estate.
When filing the return, the Maltese Government will provide the bank account number to which the taxes should be transferred. Alternatively, you can pay online via the Government’s e-service portal or through an authorised representative, such as an accountant or lawyer.
It is imperative to know the due date of any inheritance taxes to be paid. And, guarantee that the payments are sent before allocating assets to the selected heirs.
How do I file a return?
If you have to pay inheritance tax in Malta, you will need to file a return. You can do this by completing the Inheritance Tax Return Form and sending it to the Inland Revenue Department. When completing the form, you will need to provide information on the value of the estate, the beneficiaries and other details such as the date of death, the place of death and the location of assets. You will also need to declare any exemptions or reliefs that you are claiming.
Once you submit your return, you’ll be provided an assessment notice that informs you of your inheritance tax due, as well as when payment is due. Once you make the payment, your return will be finalised, and you’ll receive a receipt that proves you paid the tax. It’s important to remember that you must file your inheritance tax return within two years from the date of death. If you fail to do so, you may face penalties and interest charges.
To ensure that your return is complete and accurate, it is advisable to seek advice from a qualified professional. They will be able to advise you on how to properly calculate your inheritance tax liability. Also, provide guidance on completing the relevant paperwork.
What happens if I don’t pay?
If you don’t pay your inheritance tax in Malta on time, you may be subject to fines and interest. The Maltese Inland Revenue Department will send out a notice of non-payment. Also, give you a reasonable amount of time to make payment. If the payment isn’t made, then the Inland Revenue Department may take legal action. They may file a lien against your assets or issue an enforcement order. This could result in your property being seized. The department may also sue you for the debt and take other measures such as garnishing wages. Or even freezing your bank accounts.
Should the debt remain unpaid, there could be dire consequences such as imprisonment for a maximum of two years. Hence, it is essential to pay any inheritance tax obligations in a prompt and complete manner. If you are having difficulty paying the tax due, it is advisable to seek assistance from a financial adviser. Or professional tax consultant who may be able to negotiate a payment plan with the authorities.
Conclusion
Inheritance tax in Malta is a complex issue, and it is important to understand the implications for you. This also applies to your beneficiaries. It is important to consider all of your options when it comes to estate planning in Malta. Different rules may apply depending on the circumstances. When inheriting money from someone else, ensure that you know exactly how much you owe in tax. Also, seek advice from a financial expert if you are unsure of anything.
Finally, be sure to pay any inheritance tax due on time in order to avoid any late payment penalties. If you need to speak with an expert about your Maltese taxes, then why not contact RHJ Law?
