Inheritance tax in Malaysia: what is actually taxed when someone dies — and who inherits

There is no inheritance tax — and there has not been since 1991

Malaysia levied estate duty under the Estate Duty Enactment 1941, but it was repealed with effect from 1 November 1991. For any death on or after that date there is no estate duty, no inheritance tax and no death tax of any kind. Nothing is charged on the value of what is passed on, and there is no threshold to stay under.

That also means the beneficiary pays no tax on receiving the inheritance itself. Cash, a house, shares, EPF money or jewellery received from an estate is a capital receipt in your hands, not income. You do not declare it on your Form BE, and no relief or exemption needs to be claimed. Proposals to reintroduce a capital-transfer tax surface before most Budgets; none has been enacted.

What survives death is tax on income, not tax on wealth — and that distinction is where executors get caught out.

What is taxed: two tax files, not one

Death splits the tax year in two. Income that accrued up to the date of death belongs to the deceased and is reported under their existing tax file for that year of assessment, with the full personal reliefs they would have been entitled to. Income arising after the date of death — rent from the property, interest, business profits still being earned — is no longer theirs. It belongs to a new taxpayer called the deceased person's estate, which gets its own file and files Form TP.

• The executor or administrator is the person assessable for both, under Section 74 of the Income Tax Act 1967. Recovery is limited to the deceased's assets in their hands — but distributing the estate before the tax is settled is how an executor ends up personally exposed.
• Where the deceased was domiciled in Malaysia at death, the estate is taxed at the resident scale rates. It is entitled to the individual relief for the year of death only; from the following year there are no personal reliefs at all.
• Distributions to beneficiaries are not deductible to the estate, and are not income to the beneficiary. The estate pays tax on the income, then hands over what is left.
• If the deceased was employed, the employer must notify LHDN on Form CP22A. The employer typically withholds the final salary until tax clearance is issued, exactly as it would for a resignation.
• Close the estate's file when administration is complete. An estate file left open keeps generating filing obligations long after the money has gone out.

RPGT: the one tax that quietly resets

Death is not a disposal, so no real property gains tax arises when the property passes into the estate. The gain that built up during the deceased's lifetime is simply never taxed — which is the single largest tax advantage in Malaysian estate planning and the reason inherited property is so often held rather than sold before death.

The reset is the trap. If the executor sells out of the estate, the acquisition price is the market value at the date of death. If the property is transferred to you first and you sell later, your acquisition price and your holding period both start from the date it was transferred to you — not from the date the deceased bought it. Beneficiaries who sell an inherited house within a year of the transfer are routinely assessed in the 30% band, having assumed the decades the deceased owned it counted in their favour.

The transfer out of the estate to a beneficiary is a transmission, stamped at a nominal amount rather than on the ad valorem scale that applies to a sale.

Who inherits if there is no will (non-Muslims)

The Distribution Act 1958 sets fixed shares for non-Muslim estates in Peninsular Malaysia and Sarawak; Sabah applies its own Intestate Succession Ordinance. The fractions depend only on which of three classes survive — spouse, issue (children and their descendants) and parents. Nobody has any discretion to vary them:

Three things that surprise families about intestacy

• A surviving spouse does not automatically get everything. With children alive, the spouse takes one third — so the family home is co-owned with the children, and cannot be sold or refinanced without them all agreeing (or the court's leave, where any are minors).
• The shares apply to the whole estate, not per asset. You cannot allocate the house to one child and the savings to another without the beneficiaries agreeing a deed of family arrangement.
• If no spouse, issue or parents survive, the estate passes down a statutory order — siblings, then grandparents, then uncles and aunts — and if nobody qualifies, it goes to the government as bona vacantia.
• A will is revoked by marriage under Section 12 of the Wills Act 1959. A will made before a later marriage is usually worthless, which is why remarriage is the most common cause of unintended intestacy.
• A gift to someone who witnesses the will is void, though the will itself stands. Never let a beneficiary or their spouse sign as a witness.

Muslim estates: faraid, and the one-third limit

Estates of Muslims are distributed under Syariah according to faraid, administered through the Syariah Court, which issues a certificate of faraid setting out each heir's share. The Distribution Act does not apply.

A Muslim may still make a wasiat, but only up to one third of the net estate and only in favour of someone who is not already a faraid heir — anything beyond that needs the consent of the heirs. Hibah (a completed lifetime gift) and properly structured nominations are the usual tools for moving assets outside the faraid shares, and they must be genuinely completed during life to be effective.

Three routes to unlock the assets

Banks freeze accounts on notice of death and no land can be transferred without a grant. Which door you knock on depends on what the estate contains and what it is worth:

• The RM5 million small-estate limit and the removal of the old requirement that the estate include land both came in with the Small Estates (Distribution) (Amendment) Act 2022, in force from 15 July 2024. The previous ceiling was RM2.5 million and movable-only estates were excluded.
• The small-estate route is the cheap one: you file at the land office, no lawyer is required, and the officer conducts a hearing and issues a distribution order. Expect months rather than weeks.
• An application for letters of administration where there is no trust corporation involved generally requires two sureties who can cover the value of the estate — often the hardest practical obstacle in the whole process, and a reason to name an executor in a will.

What passes outside the estate entirely

• EPF — a valid nomination lets EPF pay out without a grant. For a non-Muslim member the nominee generally takes beneficially; for a Muslim member the nominee receives as administrator and must distribute per faraid.
• Life insurance and takaful — a nomination in favour of a spouse, child, or parent (where there is no spouse or child) creates a statutory trust under Schedule 10 of the Financial Services Act 2013. The policy money sits outside the estate and is beyond the reach of the deceased's creditors.
• ASNB and Tabung Haji accept nominations under their own rules, which sidesteps the grant for those balances.
• Land does not pass by survivorship. Co-proprietors under the National Land Code hold undivided shares, so a deceased co-owner's share falls into their estate — it does not automatically vest in the surviving co-owner, whatever the arrangement was in practice.
• A joint bank account is a matter of the bank's mandate and the parties' real intention, not an automatic transfer. Banks commonly freeze the account anyway pending proof of entitlement.

The executor's first moves

• Get several certified copies of the death certificate before anything else — every institution wants one and none returns it.
• Inventory assets and liabilities at the date of death, with valuations. The market value of any property at that date fixes the estate's RPGT acquisition price, so get it documented while it is still easy.
• Write to LHDN to notify the death, settle the deceased's final assessment, and register the estate's file if it will have income.
• Pay debts before distributing. Creditors, including LHDN, rank ahead of beneficiaries, and an executor who pays out too early can be left funding the shortfall.
• Keep estate money in a separate account and keep the arithmetic. Beneficiaries are entitled to an account of the administration.

Caveat

This is general information, not legal or tax advice, and succession is one of the areas where the details genuinely decide the outcome. Which law applies turns on the deceased's religion, domicile and the state the assets sit in; thresholds and procedures for small estates have changed recently and change again; and a contested estate is a litigation matter, not a form-filling one. Confirm the position with LHDN, the land office or a probate solicitor before acting on any figure here. Where the estate has income to report, use the calculator below to size the tax at resident rates before you distribute anything.