Included in the Cayman Islands government’s newest revenue raising measures is a proposal to increase stamp duty on the sale of real estate to 7.5 per cent.
Unlike the current stamp duty regime where, excluding waterfront properties along the Seven Mile Beach corridor and certain areas in George Town in which the rate is already 7.5 per cent, Caymanians and non-Caymanians pay different rates of duty (4 per cent and 6 per cent, respectively), the 7.5 per cent rate would apply to everyone no matter where the property was located. To put it into historical perspective, stamp duty rates for non-SMB properties have not been this high for more than 10 years – since prior to November 2001. In fact, from November 2001 to July 2006 the rate was 5 per cent 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 per cent 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 eg: 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 per cent instead of 4 per cent – a whopping increase of 88 per cent! Non-Caymanians, who were paying 6 per cent duty, will pay 7.5 per cent, a 25 per cent 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 Department 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, though before you rush off to pay your duty in advance, 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 sales associate with Re/Max Cayman Islands.