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September 30, 2024Terms & Conditions
November 8, 2024
By Azhar Iskandar Hew
Regardless of any negative comments from analyst and tax experts, the recent 2025 budget by Datuk Seri Anwar Ibrahim, our Finance Minister and Prime Minister, made a much anticipated announcement that would spur growth for the trust and estate planning industry.
The current ad valorem stamp duty imposed on the sum assured when a life insurance or takaful is assigned was like a wet blanket on the industry. Policy owners would simply not want to pay a hefty amount to assign a policy to the trustee as part of a trust arrangement. To put it into perspective, it will cost the policy owner RM64,000 as stamp duty to be paid for a RM2,000,000 insurance/takaful policy to be assigned.
| Ownership transfer value | Stamp duty payable | Amount in RM |
| The first RM100,000 | 1% | RM1,000 |
| Above the first RM100,000 to RM500,000 | 2% | RM8,000 |
| Above RM500,000 to RM1,000,000 | 3% | RM15,000 |
| More than RM1,000,000 to RM2,000,000 | 4% | RM40,000 |
| Total payable | RM64,000 | |
This would be 3 to 4 times the annual premium payable for the life insurance and takaful, which would not make any sense for the policy owner.
This is why the announcement by our Finance Minister was important and welcomed by not just the trust and estate planning industry but by the insurance companies and financial intermediaries.
The new fixed rates, starting on 1 January 2025, are based on the sum assured, as follows:
| Ownership transfer value | Stamp duty payable |
| Up to the first RM100,000 | RM10 |
| Above the first RM100,000 to RM500,000 | RM100 |
| Above RM500,000 to RM1,000,000 | RM500 |
| More than RM1,000,000 | RM1,000 (maximum) |
From the above table, it would appear that each policy value falling on the relevant band would attract a fixed stamp duty indicated in the table. But this has to be confirmed when the authorities issue detailed rules (expected to be soon).
Assuming that a fixed stamp duty fee applies to the relevant policy transfer value, then a RM1,000,000 insurance policy/takaful assigned in 2025 will cost only RM500.00 compared to the current RM24,000.00 as the ad valorem stamp duty.
The new fixed rates encourage policy owners to be insured for larger sum assured as a RM2,000,000 or RM3,000,000 or higher amount, would still incur the same RM1,000.00 stamp duty when it is assigned.
Besides the calculation of the stamp duty payable, there are also several other areas that require clarification.
First, whether the new fixed rates are applicable only for 2025 and may be revised in subsequent fiscal years, or whether it will be a permanent new fixed rate. For the continued growth of the industry, it is hoped that the announced rates scale will be a permanent one. As a result, the insurance companies and trust companies, will see growth with higher revenue that would be taxed at the corporate rate of 24% to increase the tax collection by LHDN. In addition, the intermediaries promoting life insurance/takaful and estate planning will have a better opportunity to earn higher income, again resulting in higher income tax collection by LHDN.
Second, whether the assignment of life insurance/takaful is limited to benefit only family members regardless of whether the assignment is through a trustee or not. It is hoped that the new fixed rates for assignment are not limited to benefit family members only but can be assigned to the trustee to be used for a variety of purposes such as payment of debts, continued charitable giving to the needy and to benefit persons who are not treated as family members such as an ex-spouse, parents-in-law, nephew and nieces. Without such limitation, policy owners will certainly be willing to use life insurance/takaful as the asset to create wealth for loved ones, while being able to pay debts and continue making gifts to charities or scholarships to deserving students from the B40 and M40 family income groups via a trust arrangement.
Lastly, after the life insurance/takaful is assigned to the trustee, there may be a change of heart by the original policy owner that requires the trust arrangement to be terminated. This would involve reassigning the life insurance/takaful from the trustee back to the original policy owner. Would the new fixed rates apply to the reassignment of the life insurance/takaful policy from the trustee to the original policy owner? It would be important that the new fixed rates apply, simply to spur the growth as mentioned earlier. If the ad valorem stamp duty applies, it will cause financial hardship to the original policy owner and thus will not entail any meaningful growth in the financial and estate planning industries.
Hopefully, these issues will be addressed in the coming legislation or by way of a ruling/guideline from Lembaga Hasil Dalam Negeri (LHDN).
Before ending this article, on behalf of the Association of Trust Companies, Malaysia (ATCM) having presented its proposal in September this year to the Ministry of Finance (MOF) together with LHDN, I would like to take this opportunity to thank our Prime Minister, Datuk Seri Anwar Ibrahim, MOF and LHDN for granting the new fixed rates that would help many Malaysians make their estate planning wishes come true. Thank you.
Azhar Iskandar Hew is the Secretary of the Association of Trust Companies, Malaysia, and serves as the Group CEO of Rockwills International Berhad.
[Note: The information above is not final because as of the date of publication, the finance bill is not as yet tabled to Parliament.]
