Wayna asked 2 years ago
I got a shoplot with rental income from my late dad. The property is still under mortgage loan. However, the rental income is sufficient to cover the loan.
1) assign property to me and I continue serve existing loan (under my late dad’s name)
2) transfer ownership and transfer loan to me (maintain existing interest rate), is this possible?
3) refinance and transfer ownership?
Which is the best option? What are the tax impact on personal income tax of all options? Is there any other better options besides the above? Is there any other thing that I should take into consideration before proceed with it?
Thank you.
KCLau Staff answered 2 years ago
Dear Wayna,
First, I’m glad to hear that the rental income is covering the mortgage loan, and I understand the importance of making informed decisions regarding the property inherited from your late father. Here’s a brief overview of your options:
- Assign the Property and Continue the Existing Loan: Keeping the property and loan in your late father’s name while continuing to service the loan yourself might seem like a convenient solution, but it could complicate estate administration in the long run. The bank may also require the loan to be settled or transferred, so this option might not be feasible forever. Sooner or later, transfer of ownership is required to liquidate the property in the future.
- Transfer Ownership and Loan: Transferring both the property ownership and the existing loan to your name, while keeping the same interest rate, depends on the bank’s policies. Lenders often require a new loan application when changing ownership, which might mean a new interest rate based on current market rates.
- Refinance and Transfer Ownership: This is generally considered the proper way to proceed. By refinancing, you can secure a new loan under your name while taking ownership of the property. The interest rate will be based on current market conditions and your creditworthiness. Although this might involve some costs, it will provide clarity in terms of ownership and financial responsibility.
Tax Impact:
- Malaysia does not impose inheritance tax, which simplifies the transfer process.
- Rental income remains taxable under personal income tax rules, so the rental income will need to be reported under your own tax return once the property is in your name.
Other Considerations:
- Legal Costs: Consult with your estate administration lawyer regarding the costs involved in transferring ownership and settling the estate.
- Bank Policies: Check with the bank managing the current loan to understand their specific requirements for refinancing and ownership transfer.
Ultimately, option 3 is likely the most straightforward and secure approach, ensuring the property and financial matters are handled appropriately. Do consult your estate administration lawyer for the specifics related to your situation.
Wish you best of luck.
Best regards,
KCLau