Stamp Duty Imposed on Intestate Estate
Whether distribution of intestacy as opposed to the Distribution Act attracts ad valorem stamp duty or nominal stamp duty of RM10 ?
It is to all and sundry that where a person dies without leaving a Will, his estate would be distributed between his next-of-kin in accordance with the proportion stipulated under the Distribution Act.
For more information on the distribution manner stipulated under the Distribution Act, please visit https://www.lowpartners.com/will-in-malaysia-low-partners/.
However, for family or for whatsoever reason it is common that family would have their own arrangement as to the distribution of the estate of the deceased where more often than not one or more beneficiaries would elect to renounce their right or interest over some or all of the properties left behind by the deceased. A Deed of Family Arrangement or similar kind is often made to give effect to the same.
Little did they know that in such run of the mill event where the distribution manner is eventually opposed to the manner prescribed under the Distribution Act, ad valorem stamp duty would be imposed by the Inland Revenue Board instead of the nominal stamp duty of RM10, commonly premised on the ground that such renunciation is a conveyance or transfer by the beneficiaries operating as a voluntary disposition inter vivos under Section 16 of the Stamp Act which is subject to ad valorem stamp duty.
Where Ad Valorem stamp duty is payable, the rate of duty varies depending on the nature of instruments and the consideration stipulated in the instruments or the market value of the property.
On this, it had recently been decided by the High Court in Lee Koy Eng v Pemungut Duti Setem (and another appeal) [2020] 7 AMR 296 which had subsequently been affirmed by the Court of Appeal that, the Collector’s assessments of stamp duty on the ground that the instrument of transfer (Form 14A) concerned “release or renunciation by way of a gift” fell under item 66(c) of the First Schedule of the Stamp Act 1949 and therefore attracted ad valorem stamp duty is erroneous because when the deceased’s children renounce or disclaim their entitlement to the estate, the renunciation cannot constitute as a gift of the entitlement to the appellant (i.e. the wife of the deceased in this case).
In case of an intestate estate, a beneficiary under an intestacy has no right or interest in the estate of the deceased until the administration of the deceased’s estate is complete and until the distribution is made according to the law. Because of such lack in the title and interest to the deceased’s estate, the beneficiary concerned cannot pass on the title and interest to another, notwithstanding that he is a beneficiary. In the circumstances, there cannot be any gift by the person concerned since the right or interest in the estate has never been vested in him.
Hence in such event, when a person entitled on intestacy disclaims or renounces his right or interest, then that right or interest will then pass by operation of law to the other beneficiaries entitled thereto. A nominal stamp duty of RM10-00 should therefore be imposed instead of ad valorem stamp duty.
In Lee Koy Eng’s case, the Collector’s reliance on Items 32 and 46 of the First Schedule of the Act cannot be of any help primarily for the same reason. The Collector is therefore ordered to refund to the appellant the excess stamp duty paid by the appellant to the Collector.
Albeit the decision above, this issue has time and time again arose and should the Inland Revenue Board opines that an ad valorem stamp duty should be imposed, the process of filing an appeal against that decision is costly and time consuming. The importance of making a Will is therefore reminded again as having a Will will not only help to avoid family dispute over the estate of the deceased, but most importantly to enable a smooth and cost effective administration of the deceased’s estate.
This article is written by
Gwen Yeap Siew Fen
Partners, Low & Partners
Jareen Lee Hoay Yin
Principal Associate, Low & Partners
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