Property is an important asset, and often, one that’s linked to substantial sentimental and economic value.
That means understanding the reality of property inheritance is an important part of being a responsible owner.
Although inheriting a house almost certainly occurs, it’s important to understand the rules, regulations, and conventions surrounding this important transition of ownership.
Here’s a simple guide to common terms and to help you understand what’s involved in inheriting a property. But first, you would need to….
Understand different scenarios for inheriting property
Malaysia operates under a dual legal system, which can get slightly more complicated and tricky.
This just means that cases of inheritance can be defined by civil law, OR Shariah law that only applies to the country’s Muslim citizens. So, how to tell the differences?
Under Shariah law, inheritance follows the Islamic faraid principles of inheritance, which determines the shares, limits, and path of inheritance relevant to a deceased individual’s estate.
Under Shariah law, up to one-third of the total value of an estate may be decided using what’s known as a wasiyyah, or Islamic will.
Under civil law, estate inheritance is governed by a number of statutes and regulations.
Inheritance is defined by the Distribution Act 1958 and the Inheritance (Family Provision) Act 1971, both of which lay out the conditions of inheritance.
Civil law allows for the personal wishes of an individual to dictate the ownership of an estate upon their death through the use of a will.
That means that, in theory, a sole surviving parent with three children could leave the entire estate to ONLY ONE individual!
If an individual dies without a will, the estate is divided between surviving family members according to legal precedents for what is known as ‘dying intestate’.
This essentially means that there are no clear directions as to the division of your estate. Sabah follows different laws under the Intestate Succession Ordinance 1960.
Without further ado, here are some of the more common questions that have been asked regarding inherited property
1) Do I have to pay tax for inheriting property?
There’s currently NO tax for estate inheritance in Malaysia. A previous version of it was repealed in 1991.
Plenty of discussions about the reintroduction of an inheritance tax have been held by successive governments, but as of Budget 2020, no new laws have been introduced.
However, let’s say the old inheritance tax were to be brought back; do you know the MAIN reason why so many people were against it? Let’s look at a simplified example!
In the event that there’s property to be inherited from a deceased family member or relative, an inheritance tax may be imposed on those assets, even if there’s no economic gain.
Do you know what this means? There’ll be a tax is imposed on the transfer of the legal ownership, even if you’re already living in the said property you’d be inheriting!
2) Would the inheritance tax have a positive impact though?
According to Mohideen Abdul Kader, the acting president of the Consumers Association of Penang (CAP), reintroducing the inheritance tax would have “…been the best way to tackle wealth inequality”.
So what’s all the debate surrounding inheritance tax?
For starters, there’s the injustice where a person could work all day and all night and pay their taxes, but still be stuck in the B40 group.
On the other hand, a person who doesn’t do any of those could earn a fortune by simply inheriting multiple properties and not paying any tax on them at all.
Simply put, an inheritance tax could be regarded as another way to impose a tax on inflation.
As property prices change from the time of the property being bought right up to when it’s sold, the inheritance tax would be imposed on the current market value of the property.
It’s a rather stark contrast; imagine being taxed for a home that was valued at RM50,000 40 years ago, compared to a home now valued at RM500,000!
Although inheritance tax is touted as being good for the economy and government revenue, there’s no guarantee of it being 100% effective to bridge income inequality and push property ownership up the ladder.
3) Does the size of my house make a difference to inheritance tax?
The size of your house, and total value of your property, may impact which government agency is responsible for overseeing the estate of a deceased individual. No inheritance tax will be applied.
Estates which have a total cash and property valuation of less than RM2 million are overseen by the Land Office and Public Trustee.
Malaysia’s High Court is responsible for distributing assets (such as property) for estates valued over RM2 million.
4) What exactly is estate planning?
When we talk about inheritance, we often talk about an ‘estate’. What that means in practice is the total amount of money, financial accounts, and property owned by an individual.
That covers both inheritance money and inheritance property.
When it comes to property, inheritance can be quite complex. It is of course a valuable asset, but one where the financial value is quite literally locked into the bricks and mortar of the building.
That makes it a challenging asset to divide. This is why estate planning is so important!
Estate planning attempts to remove uncertainty when it comes to distributing your estate after death, by laying out/providing for your wishes.
A professionally drafted will is the first place to start, setting out your wishes in a formal document.
Insurance can be another important part of estate planning, providing the financial support for your family for everything; this is usually from a lump sum payment at the point of death to cover funeral and future expenses.
Trusts can also be an important part of estate planning. These are legal agreements that deal with the ownership and distribution of an individual’s property.
Trusts can be established as a revocable trust (can be altered or cancelled), or irrevocable trust (cannot be amended once established).
Trusts provide a useful tool in some situations to ensure the smooth transition of ownership at the point of death.
Muslim property owners can also dictate their own wishes using a wasiyyah, or Islamic will. These agreements outline an individual’s wishes around the distribution of property upon their death.
A wasiyyah cannot contradict established Islamic law around inheritance, but does allow for caveats such as the permissible one-third of an estate bequeathed when an individual dies.
To add complications to this situation, a wasiyyah is also subject to procedural review under the following laws:
- Rules of the Courts 2012
- Probate and Administration Act 1959 (Act 97)
- Small Estate (Distribution) Act 1955 (Act 98)
- Public Trust Corporation Act 1995 (Act 532)
- Relevant States’ statutory provisions applicable in Shariah courts.
We’ve said this before, and we’ll say it again, inheritance can quickly become very complicated!.
If ever in doubt, you should seek qualified advice from a relevant professional to help guide your own understanding.
5) Am I required to have a will?
No, but it’s a VERY sensible thing to do to ensure your wishes are followed upon your death.
6) Can you dispute an inheritance?
Yes, inheritance disputes are why good estate planning is such an important part of inheritance. That means setting out your wishes, but also discussing them with your family.
7) What happens to property if nobody inherits it?
This is a recognised challenge in Malaysia. No official centralised record of unclaimed properties is currently kept.
Unpaid quit rent (an essential land tax) is often the only sign that a property remains unclaimed.
Inheriting property doesn’t have to be so difficult!
Whether it’s a family home passed down through the generations or a rental flat offering additional passive income, inheriting property is an important period of your life.
If you’re lucky enough to own your own property, you need to make estate planning a serious consideration.
It’s not just about planning for your future, but about planning for the future of those you love the most. And the last thing you’d want to do is add to the heartache of your loved ones mourning your death.
If in doubt, you should seek qualified legal and financial advice to ensure you understand your rights and obligations. This article does not constitute official legal or financial advice, and is designed to support and guide you to better understand the general landscape of property inheritance. If you want another landscape to explore, how about searching our extensive database for the thousands of great properties for sale?