All assets and wealth left by an individual upon death are called the estate. These assets include:
| Cash | Non-cash (Vehicles, stocks, real estate assets such as houses, buildings, land, etc.) |
The estate is administered by the deceased’s legal representative known as trustee or administrator, and will be distributed to the deceased’s entitled heirs who are the beneficiaries. In addition to estate administration, the executor is also responsible for the welfare of the deceased’s minor children and surviving parents such as ensuring adequate food, good care, healthcare, education, proper shelter and safety.
Besides that, the deceased also leaves behind liabilities such as debts that are still under the responsibility of the deceased. The estate cannot be distributed to the beneficiaries and entitled heirs until all of the deceased’s liabilities including tax liabilities have been satisfied in full. Section 74 of the Income Tax Act 1967 (ITA 1967) indicates that any outstanding income taxes cannot be automatically waived even if an individual dies. Therefore, the executor will utilise the estate’s available cash or dispose properties to settle the deceased's debts.
The deceased estate exists from the day after the date of the individual’s death until the date of completion of the administration of the estate.
| Testate (With a will) |
Intestate (Without a will) |
When an individual dies, the deceased’s next of kin must determine whether the deceased has left a will. This is important in determining the executor or who is entitled to become the executor.
For an individual who has made a will, that person would have designated one or more trustees to fulfil the terms outlined in his will. The trustee can be anyone the individual trusts to manage the estate in the best interest of the beneficiaries. The trustee may or may not be a beneficiary themselves and can even be a trustee company. To manage the estate, the trustee must apply to the Court for a Grant of Probate, which grants him the authority to administer the estate.
However, if the Court decides that the will is invalid, the beneficiaries must then apply for a Letter of Administration appointing an administrator or legal representative to administer the estate. There are also situations where only certain provisions of a will can be enforced while some may not be. In this case, the Court will decide on the provisions that cannot be enforced and deem to not be included in the distribution of the estate.
For circumstances where a will is absent, the Court by way of the Intestate Succession Law will determine the beneficiaries who may become the administrators and then to apply for the Letter of Administration to manage the estate. Nevertheless, if a Letter of Administration is not requested for, the closest heirs may be appointed to take on the responsibility of the deceased’s tax liabilities and to administer the properties left by the deceased.
Whether the estate is managed by a trustee (under a will) or administrator (in the absence of a will), the responsibilities of an executor concerning taxation affairs pertains throughout the administration of the estate.
Estate tax (also known as inheritance or death tax) is a tax levied on the right to transfer assets of a deceased person before distribution to heirs or beneficiaries. It is applied on the net value of the estate, which includes properties, cash and other assets, after debts and other deductions are subtracted.
In Malaysia, estate taxes were imposed back in the days, however it was abolished in year 1991. Since then, there have been discussions over the years regarding the reintroduction of this tax, however as of now, there is no such tax in place under the Malaysian tax laws. This indicates that we are not charged with taxes on the accumulated wealth of a deceased individual.
Estate taxes varies significantly by countries. Below is a summary of the estate tax landscape in different regions:
| Country | Rate (%) |
| Australia | N/A |
| Brazil | 8 |
| Canada | N/A |
| India | N/A |
| Japan | 55 |
| Singapore | N/A |
The implementation of estate taxes often generates a mixture of support and opposition, largely depending on economic perspectives and values around wealth distribution. Estate taxes have been facing mixed responses worldwide stemming from the early days till present.
Although in Malaysia there is no estate taxes levied upon a person's death, however there are other potential taxes or costs that might be incurred, such as:
| Real Property Gains Tax |
Stamp Duty | Income Tax |
Each of the areas above are detailed as follows.
This tax applies on the disposal of real property, however it is only relevant if the estate's properties are sold. The tax rate varies depending on the holding period of the property before it is sold.
According to Schedule 5 of the Real Property Gains Tax Act 1976 (RPGTA 1976), the rates of tax are summarized as follows:
| Companies incorporated in Malaysia or a trustee of a trust or a body of persons registered under any written law in Malaysia | Individuals (citizens, permanent residents and others) | Individuals (non-citizens and non-permanent residents) or companies not incorporated in Malaysia | |
| Within 3 years from the date of acquisition | 30% | 30% | 30% |
| In the 4th year | 20% | 20% | 30% |
| In the 5th year | 15% | 15% | 30% |
| In the 6th and subsequent years | 10% | 0% | 10% |
For the devolution of an asset of a deceased person on his executor or legatee under a will or intestacy or on the trustees of a trust created under the will, the disposal price is deemed to be equal to the original acquisition price according to Paragraph 3(1)(a) of Schedule 2 of the RPGTA 1976. The disposal date is the date of transfer of ownership of the asset according to Paragraph 15A of Schedule 2 of the RPGTA 1976. Therefore, this constitutes a no gain no loss transaction, hence it is not taxable.
For the executor of the deceased estate, the date of acquisition of the asset is deemed to be as at the date of death of the deceased individual, whereas the acquisition price is the market value of the asset as at the date of death less the sum referred to under Paragraph 4(1)(a), (b) and (c) of Schedule 2 of the RPGTA 1976.
For the transfer of assets inherited from a deceased estate, the treatment of acquisition date and price for a beneficiary is as follows:
| Assets inherited | Acquisition date | Acquisition price |
| Gift of an asset on death | Date of transfer of asset | Market value of the asset as at the date of transfer less the sum referred to under Paragraph 4(1)(a), (b) or (c) of Schedule 2 of the RPGTA 1976 |
| Acceptance of an asset in place of a money legacy | Date of transfer of asset | Market value of the asset at the date of transfer or amount of legacy, whichever is lower, less the sum referred to under Paragraph 4(1)(a), (b) or (c) of Schedule 2 of the RPGTA 1976 |
| Transfer of an asset to a legatee by an executor (irrespective whether he himself is a legatee or not) or by the trustee of a trust created under a will | Date of transfer of asset | Market value of the asset as at the date of transfer less the sum referred to under Paragraph 4(1)(a), (b) or (c) of Schedule 2 of the RPGTA 1976 |
Note: Paragraph 4(1) of Schedule 2 of the RPGTA 1976:
4. (1) Subject to subparagraphs (2), (3) and (4) and the other provisions of this Schedule, the acquisition price of an asset is the amount or value of the consideration in money or money’s worth given by or on behalf of the owner wholly and exclusively for the acquisition of the asset (together with the incidental costs to him of the acquisition) less—
(a) any sum received by him by way of compensation for any kind of damage or injury to the asset or for the destruction or dissipation of the asset or for any depreciation or risk of depreciation of the asset;
(b) any sum received by him under a policy of insurance for any kind of damage or injury to or the loss, destruction or depreciation of the asset; and
(c) any sum forfeited to him as a deposit made in connection with an intended transfer of the asset.
When a property is transferred to a beneficiary, there may be stamp duty charges. The rate depends on the value of the property transferred.
According to First Schedule of the Stamp Act 1949, the rates are as below:
| Properties | |
| (a) Other than foreign companies, non-citizens and non-permanent residents | |
| Price Tier | Stamp Duty (% of Property Price) |
| First RM100,000 | 1% |
| Next RM400,000 | 2% |
| RM500,001 to RM1 million | 3% |
| Above RM1 million | 4% |
| (b) For foreign companies, non-citizens and non-permanent residents |
|
| Flat rate of 4% |
|
| Non-listed stocks or shares | |
| RM3 for every RM1,000 or any fraction thereof based on consideration or value, whichever is greater | 4% |
However, for transfer of property from the deceased estate to the beneficiary, only a nominal value stamp duty of RM10 per transaction is chargeable. Also, the same fixed duty of RM10 is charged for transfer of a property by way of release or renunciation by a beneficiary of a deceased estate to another beneficiary entitled under the same estate.
Any income or gains related to the deceased estate during the period of administration may still be subjected to income tax. The following are some probable sources of income in line with Section 4 of the ITA 1967:
i. Rental [Paragraph 4(a) or 4(d)]
After the death of an individual, his properties shall be passed on to the entitled heirs or beneficiaries. If those properties continue to be rented after the original owner's death, the rental income will fall on the new owner.
However, if the said properties are not distributed to the entitled heirs or beneficiaries, then the rental income will be considered as a part of the estate’s income under the administration of the executor.
ii. Dividend – Paragraph 4(c)
After the individual’s death, dividend income will be considered as a part of the estate’s income.
iii. Interest – Paragraph 4(c)
Interest income received after the individual’s date of death will be considered as a part of the deceased's estate income.
In Malaysia, the duty to inform the Inland Revenue Board of Malaysia (IRBM) in relation to the demise of an individual is on the executor or next of kin, which is to be done as soon as possible upon the death, through Form CP57 (Notification of Taxpayer’s Demise) in accordance with Section 74(3)(a) of the ITA 1967 and Section 14(4) of the RPGTA 1976. Upon this notification, the IRBM will commence the posthumous assessment and will have a time period of three (3) years (from the year in which the demise was informed) to raise any assessments or additional assessments against the deceased for any income earned or for any disposals of real properties made by the deceased up till his death that could attract RPGT. Any assessments raised further than the 3-year time period will be deemed time-barred.
The Form TP is used for the filing of a tax return of a deceased estate. This form is submitted by the executor or administrator of the estate, and it ensures that any income or gains earned by the estate after the individual's death till the properties are transferred to the beneficiaries are properly taxed. Tax deductions are allowed for approved donations or contributions made by the estate and also a personal tax relief of RM9,000. The estate is not entitled to any other tax reliefs. The financial particulars of the estate specifically the Trading, Profit and Loss Account and Balance Sheet for the current year must be declared in the Form TP. The chargeable income of the estate will be taxed in accordance with the individual income tax rates. Penalties will be imposed for late submission of return form to the IRBM under Subsection 113(2) of the ITA 1967.
During the deceased’s year of death, all income accruing to the deceased up to and including the date of death will be taxable under the name of the deceased. For this, the executor is responsible for submitting the personal tax return on behalf of the deceased. It must be submitted to the IRBM not later than 30th April of the following year for those who received employment income or not later than 30th June for those who received business income. Subsection 64(1) of the ITA 1967 stipulates that any income arising after the date of death of the deceased shall be considered as income of the estate and shall be taxable on the executors. Therefore, these income are not considered as the personal income of the deceased.
Example:
John was employed as an engineer. He was also receiving rental income from an apartment that he owns. He was married and had one daughter aged three (3) years old. He had written a will prior to his death and named his sister, Alicia, as the executor of the estate, and had written that the apartment he owns to be transferred to his daughter once she attains the age of twenty-one (21) years old. John had passed away on 15th August 2024.
Upon John’s death, Alicia is required to submit the tax return (Form BE) on behalf of John for year of assessment 2024 not later than 30th April 2025. The income that is required to be reported in the Form BE would be John’s income (salary and rentals) from 01st January 2024 till 15th August 2024. The following months’ rentals including any other income received on or after 16th August 2024 is the income of the estate and is assessed on Alicia as the executor. Alicia would also need to submit the tax return (Form TP) for the estate for year of assessment 2024 by 30th April 2025. Then, the income received for the following years of assessment (from year of assessment 2025) would be subjected to taxation as the income of the estate in the name of Alicia (executor). Therefore, Alicia is required to continuously file the Form TP for the estate until the administration of the estate is completed (distribution to entitled heir and beneficiary).
The executor is responsible for satisfying all of the tax amounts assessed including any penalties imposed. If the executor fails to satisfy the deceased's outstanding taxes, the executor may be subjected to civil action under Section 106 of the ITA 1967. It is important to note that the executor is allowed to apply for tax refunds if there were any amounts that the deceased should have received before his death.
Estate planning in Malaysia is becoming increasingly important as individuals and families seek to manage their wealth for future generations. It not only impacts personal wealth planning, but also family-owned enterprises and up till business succession. Having a well-structured estate plan ensures that assets are distributed according to personal wishes. As Malaysia continues to evolve economically, the need for proper estate planning will become even more critical, offering peace of mind and financial security for families. By understanding the legal frameworks and utilizing appropriate tools, individuals can safeguard their legacies and ensure smooth transition of wealth to future generations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
