Can one be charged stamp duty on an inheritance?

PEMUNGUT DUTI SETEM v. LEE KOY ENG (SEBAGAI PENTADBIR KEPADA HARTA PUSAKA TAN KOK LEE @ TAN CHIN CHAI, SI MATI) [2021] MLJU 2083

• Lee Koy Eng (“ Lee”) and her son, Tan Chun Keat (“Mr. Tan”) were appointed by the Shah Alam High Court as co-administrators of Ms. Lee’s husband’s estate (“the Deceased”).

• In view of the fact that the Deceased died without a will, Section 6(1)(a) of the Distribution Act 1958 (“DA 1958”) provides that Ms. Lee and the Deceased’s 2 children shall each have one-third of the Estate.

• The Estate consists of, among others, the Deceased’s interest in 5 pieces of land.

• Lee and the 2 children executed a “Deed of Family Arrangement” on 2.10.2018 (“DFA”) where Ms. Lee and the 2 children [Tan siblings] agreed to distribute, among others, the Deceased’s interest in the 5 properties to Ms. Lee only.

• On 20.12.2018, the Shah Alam High Court issued an order to vest the Deceased’s interest in the 5 properties to Ms. Lee only (“the Vesting Order”)

• Pursuant to the Vesting Order, Ms. Lee and Mr. Tan executed 5 “Forms 14A”, instruments of transfer of the Deceased’s interest in the 5 properties under the National Land Code, in favour of Ms. Lee only.

• Pursuant to section 36(1) of the Stamp Act 1949 (“the SA”), the Collector imposed ad valorem stamp duty on Forms 14A.

• The Collector’s Assessment was made on the ground that the Forms 14A concerned “release or renunciation by way of gift” under item 66(c) of the First Schedule of the SA.

• Lee objected to the Collector’s Assessment and applied to the Collector to review the Assessment under section 38(1) of the SA.

• The review application was made on the basis that a stamp duty of RM10.00 should be assessed for Forms 14A in accordance with item 32(i) in the First Schedule.

• The Collector dismissed the review application. Hence, Ms. Lee paid the stamp duty in full as stated in the Collector’s Assessment.

• Lee then filed appeals to the High Court against the Collector’s dismissal of the review application according to section 39(1) of the SA.

• The only question posed by these appeals is whether the Forms 14A, in this case, attract ad valorem stamp duty under item 66(c) (release or renunciation of property by way of a gift) or a fixed amount of stamp duty of RM10.00 pursuant to Item 32(i) (conveyance or transfer which is not specifically charged with stamp duty).

• The High Court allowed Ms. Lee’s appeal with costs and ordered the Collector to refund the excess stamp duty that was paid by Ms. Lee.

• The Collector appealed to the Court of Appeal.

• The Court of Appeal agreed with the High Court that the Tan sibllings were merely entitled to 2/3 of the Deceased’s estate. They don’t have a beneficial or legal interest in the estate until the administration of the estate is complete.

• Therefore, the Deed of Family Arrangement executed by the Tan siblings was merely their renunciation of their entitlement to the estate of the deceased. It was deemed not a gift as the Tan siblings were not the beneficial or legal owners of the properties. As such they had no right to gift the properties away.

• On that basis the Court upheld the High Court fuling that the true nature of the instant Forms 14A is solely to give effect to the renunciation of their entitlement made by the Tan siblings and it was not a gift.

• Because it was not a gift, ad valorem stamp duty under item 66(c) (release or renunciation of property by way of a gift) would not apply