Proposed stamp duty increase on real estate
Included in the Government’s newest revenue raising measures is a proposal to increase stamp duty on the sale of real estate to 7.5%. Unlike the current stamp duty regime where, excluding waterfront properties in the Seven Mile Beach corridor and certain areas in George Town in which the rate is already 7.5%, Caymanians and non-Caymanians pay different rates of duty (4% and 6% respectively), the 7.5% rate would apply to everyone no matter where the property was located.
To put it into historical perspective, stamp duty rates for non-SMBproperties have not been this high for over 10 years – since prior to November 2001. In fact, from November 2001 to July 2006 the rate was 5% across the board.
However, the Government did provide some limited relief by also proposing to increase the values for stamp duty concessions for first time Caymanian buyers as follows:
(a) No stamp duty on vacant land up to $100,000 or houses or condos up to $300,000;
(b) Stamp duty of 2% on land between $100,000 and $150,000 along with houses or condos valued between $300,000 and $400,000.
I’ve always agreed with the principal that where a tax is applied, all persons should be subject to the same level of tax, e.g. no distinctions due to citizenship. However, there are obviously a significant number of Caymanians who are not first time buyers or who are buying properties at prices higher than the above thresholds. These persons will now be required to pay 7.5% instead of 4% — a whopping increase of 88%. Non-Caymanians, who were paying 6% duty, will pay 7.5%, a 25% increase.
As a result, I have been getting numerous enquiries from my clients and customers asking whether there is some way to pay duty now before the higher rate comes into effect. This is not a new scenario for the Cayman Islands as in the last 10 years the stamp duty rates have gone up and down several times. Many people are unaware that it is possible to pay stamp duty on a purchase agreement and then pay no stamp duty on the subsequent Transfer of Land where the agreement and Transfer conform to one another, i.e. same parties, same price, same property.
In the past, the practice of the Government Valuation Department has been that where a Purchase Agreement is submitted and stamp duty paid prior to the date that the stamp duty rate is increased, and the purchase is not completed until after the date of the increase becomes effective, the Valuation Dept will not reassess or ask for additional duty, even though the rates have changed between the date of agreement and date of completion.
That is all well and good. Before you rush off to pay your duty in advance though, please consider that there are a number of different scenarios which can arise regarding paying duty in advance of closing, and the issues can become rather complex when you factor in the various applicable laws and government departments which have a role in collecting duty. I therefore strongly recommend you seek the advice of an attorney before paying stamp duty.
Note also that if for some reason your purchase does not complete, then you cannot obtain a refund of the stamp duty that you have paid on the purchase agreement. For example, this could occur in a situation where you have paid the duty on your agreement, and then your financing falls through and as a result you cannot complete the purchase. You would then be out the amount of duty that you had prepaid on the purchase agreement.
As with any real estate transaction, tread carefully and, as always, buyer beware!
Scott Elliott is a real estate agent at RE/MAX Cayman Islands.
Category: Viewpoint
On top of the stampduty comes of course the 6, 7 or 8 percent commision for the broker.
I welcome this end to discrimination.
This increase ONLY really affects Caymanians as expats already pay the higher fee and expats generally have more disposal income than Caymanians, and Caymanians have no where else to live other than Cayman and need to opportunity to buy land (unlike expats who can return to their countries if they chose).
This proposed change dissuades Caymanians from buying land in their own country and “gives away” more of Cayman yet again. I am in no way against expats as Cayman would not be what it is today without them but this is not a smart decision yet again by Mac whose shortsightedness will destroy these islands.
Caymanians take note in the next elections!
It affects us foreign investors, since we are trying to dump our investments in Cayman just as fast as we can, and selling to Caymanians is our best hope since foreigners are not likely to be interested in Cayman under the present circumstances. Impeding those buyers impeds our exit.
wrong
It affects Caymanians more, but it still affects expats, whether buying (1.5% so a 25% increase to the existing stamp duty paid),
or selling, this is likely to decrease demand in their property leading to a decrease in value and stopping expat returning home if they want to as the rental market is so bad they end up with a mortgage on a house they cannot live in or rent so are trapped until they are completely when throw out at rollover. (yes there are a majority of rexpats that own property and rolled over)
Caymanians are also not stuck in Cayman as they are given a UK passport, all they have to do is take the effort to apply, and they can live forever in the UK or Europe so Caymanians have greater choice of where to live as many expats.
Wrong, only BOTC’s can make that application and it is not granted in all cases anyway. Thousands of Caymanians are not even BOTC’s.
But they can be, easily. All they have to do is fill in the paperwork and attend a ceremony.
Wrong again. The process takes about a year, the result is uncertain, and thousands of Caymanians are not even eligible to apply. Even bing away from Cayman for 91 days in a year can disqualify an applicant. Then it takes months to apply for registration as a British citizen.
This is copied from the website of the Home Office.
"On 21 May 2002, British overseas territories citizens became British citizens automatically under the 2002 Act if they had that citizenship by connection with a qualifying territory."
Why is the process uncertain? Which Caymanians (all of whom should have connection with a qualifying territory — ie. Cayman) are ineligible?
Thousands of Caymanians are not British Overseas Territories Citizens and thousands of others became British Overseas Territories Citizens after the 2002 Act and do not benefit from any automatic entitlement.