Editorial: The case against a tax on inheritance

Malta does not levy an inheritance tax, unlike many jurisdictions. However, this does not mean that inheritance in Malta is entirely tax-free.

The Capital Transfer Duty, also known as stamp duty, applies to certain assets and property that are transferred as part of an inheritance.

Alex Borg, the PN leader, promised that if elected, he would remove the stamp duty tax on every transfer in the case of inheritance.

This is one of the most significant promises made by the PN in this election campaign, as it concerns the abolition of an old-fashioned tax that has lost any rationale it may have had in earlier times. 

The arguments against the tax on inherited property are convincing and make economic and social sense. Inheritance tax is an unjust levy on wealth created by individuals who would have already been taxed on their earnings. It is nothing more than a form of double taxation.

The process of paying tax on inherited property is also an unfair burden on grieving families who have to deal with a complex process at a time when they are facing the loss of a loved one.

Borg made a coherent argument when he stated that “Generated money within the Maltese economy will be passed directly to the people”. Today’s younger generations are likely to be less well off than their parents because they have to combat the “scourge of the rising cost of living” and often unaffordable housing costs.

The PN’s proposal also promises to remove succession tax on inherited family businesses by fully removing tax and stamp duty on the transfer of family businesses that pass by way of inheritance, whether the transfer involves shares in companies or valuable property used for commercial purposes.

Malta’s business landscape is characterised by tens of thousands of micro businesses, many of which are family-owned.  Death duties damage the economy by frustrating the redistribution of wealth through giving and bequests.

Inheritance tax is a tax on middle wealth and rising wealth. It is also a disincentive to save and invest as it discourages individuals from accumulating wealth, investing, or passing on assets to their children.

Ironically, Malta markets itself as a low-tax jurisdiction for foreign wealth owners seeking to minimise the impact of income, capital gains, and inheritance taxes in their own countries. In contrast, it taxes its own citizens on assets they accumulate through hard work in their lifetimes and bequeath to their heirs.

The PN proposal also promises to remove tax on donations of immovable property by fully abolishing the tax and stamp duty on the transfer of immovable property passing from parents to their children or grandchildren by way of donation.

This is one sure way to help younger generations cope with the burden of high housing inflation, which has become endemic. Housing costs keep increasing rapidly, partly as a result of the government’s economic model, based on inflating housing demand through the liberal importation of foreign labour to support frothy economic activity.

Various administrations have contributed to the mountain of uncollected tax owed by individuals and businesses. Unsurprisingly, the IMF, in its latest report on Malta, has urged the government to do more to enforce tax compliance. 

The Labour Party would be more credible if it were more laser-focused on tackling tax evasion and inefficient tax collection, rather than denigrating the progressive PN proposal to eliminate taxes on inherited property.

A rising standard of living and improved quality of life should be reflected in ownership of assets increasing from each generation to the next through the institution of inheritance without taxation.