$100 ruling may set stamp duty precedent

Court case challenges property valuation

The Law Courts Building in downtown George Town.

A disputed stamp duty assessment on a land purchase in South Sound – amounting to a $100 difference in what was charged to the buyer – could have major ramifications for the Cayman Islands property market.

According to Grand Court Judge Alastair Malcolm’s ruling, “The difference between the parties [involved in the property valuation] is only $100, but there is an issue of principle that may well affect other conveyances [of property].”

Law firm Walkers, which analyzed the judgment a few days after it was released, noted that the decision raises a critical question of whether the “historical practice” in Cayman of charging stamp duty based on valuations rather than on the agreed purchase price of land or a home is correct.

“And if not [correct], the extent to which overpayments may be recoverable,” the firm’s analysis, penned by attorneys Stuart Rowe and Nick Dunne stated.

The case involves the purchase of land by Peggy Basdeo, who qualified for a lower 2 percent stamp duty rate on a piece of property in South Sound since she was a first-time Caymanian buyer, according to court documents.

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The agreed purchase price was $115,000, and the court records state that this price is what Ms. Basdeo thought stamp duty would be assessed against.

However, Cayman’s Stamp Duty Law states that the amount charged for duty on a property purchase will either be based on the agreed purchase price or the official valuation, whichever is higher. The provision is in the law to ensure government receives what is believed to be a proper consideration for stamp duty if the property changes hands between close friends or family. For instance, if a father sells a son a four-bedroom home for $1, government still wants to collect market value on the duty for that property transfer rather than on the $1.

The property’s “market value” is defined in the law as the estimated amount for which the property should exchange during an “arms-length” real estate transaction [where the buyer and seller are not familiar with each other] and where both parties acted “without compulsion.”

In Ms. Basdeo’s case, a valuation was completed, setting the land valuation at $120,000, or $5,000 higher than the agreed purchase price. At 2 percent stamp duty assessment for a first-time Caymanian buyer, that means she would have to pay $2,400 in stamp duty, rather than $2,300 on the agreed purchase price.

“Any valuation being opinion-based, it is common for valuers to produce different figures, however great their experience or expertise may be,” Justice Malcolm noted in his ruling. “The best evidence of the market value of a property is the actual price agreed ….”

Justice Malcolm said there was no evidence in this case that the land purchase by Ms. Basdeo was anything other than an “arms-length” transaction after the property had been advertised on the Cayman Islands Real Estate Brokers Association listing site.

The Grand Court judge ruled government had charged Ms. Basdeo the incorrect rate for the property transfer, about 2.09 percent instead of the 2 percent it should have assessed.

According to the Walkers’ analysis of the judgment, Justice Malcolm’s decision noted “broader issues” beyond simply those involving duty charged to first-time Caymanian property buyers.

“Whilst in this case the sum overpaid was small – a matter of $100 – the differential may be more stark in the case of higher value property,” the legal analysis read. “[This could occur] in circumstances where there is a wider gulf between purchase price and valuation, or indeed simply where the full rate as opposed to discounted rate of stamp duty applies.”

The Cayman Islands government charges a one-time 7.5 percent duty rate on all normal home purchases, no matter where they occur, except in cases such as Ms. Basdeo’s, where the buyer is a first-time Caymanian purchaser.

There is no annual property tax assessed on home or property owners in the Cayman Islands.

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  1. Fantastic. Shall I expect my refund cheque in the post or do I also have to file legal proceedings.

    Will the Government refund the lady her legal fees? This will obviously be much more then the $100 she fought for.

  2. I am not sure about the statement that stamp duty would be chargeable at market value for a transfer from father to son.

    My understanding is that there is no stamp duty on transfers made in consideration of love and affection.

    Can some expert please confirm or deny this?