If there is one place on the planet that should have a simple tax structure, it is the Cayman Islands. So why are lawmakers considering adding more complexity to our country’s stamp duty regime on property purchases?
All governments must collect revenue in order to carry out their functions. That is true even in a territory such as Cayman, whose reputation globally is characterized by phrases such as “low-tax,” “tax-neutral” and (less than accurately, sadly) “tax-free.”
This summer, the U.S. government unveiled a long-discussed change to income tax filing; now, many U.S. taxpayers can report their tax obligations on a document the size of a postcard.
Cayman can do better than that. The calculations required for stamp duty on property purchases should be able to fit on the back of a postage stamp.
Instead, our legislators have shackled developers and homebuyers with a system that grows more convoluted with each attempted fix, tweak and exemption.
Lawmakers are prepared to do it again this month by taking up a Stamp Duty Bill, which supporters say will close a long-standing “loophole” that has allowed “pre-construction” buyers to reduce their government fees (sometimes tens of thousands of dollars) by paying stamp only on the value of land purchased, rather than the completed value of the home or condominium the developer has simultaneously agreed to build.
The bill’s backers say that the so-called “linked property transaction” – an arrangement where the buyer purchases a plot of land in a development with an agreement to buy a finished property in the same development – has robbed government of revenue.
Opponents say the bill will increase the cost of new homes and throw cold water on Cayman’s red-hot development market.
(Taxes vs. the economy. Guess where our sympathies lie.)
While the Stamp Duty Bill is closing one “loophole,” it is at the same time blowing another one wide open – by substantially expanding concessions for first-time Caymanian homebuyers, exempting them from paying duty on land valued up to $150,000 or homes up to $400,000, and also raising the ceiling for stamp duty reductions for more expensive land or homes.
These concessions do not apply to certain areas of Grand Cayman, for example, downtown, off West Bay Road, off North Church Street or on the water.
In summary, the general stamp duty rate for property transfers in Cayman is 7.5 percent of the purchase price (or the assessed value of the property, whichever is higher).
However, depending on who you are (first-time Caymanian homebuyer or not), what you are buying (land or completed home) and where the property is located, your total stamp duty obligation could be 0, 2 or 7.5 percent. (And under the new bill, “linked property transactions” for purchases of less than $300,000 would be subject to a new, 3 percent stamp duty rate.)
Also, a relatively “hidden” tax is the additional 1-1.5 percent stamp duty rate on mortgages, again depending on the amount of money involved.
This does not have to be complicated.
Here’s an idea: Set a universal stamp duty rate for all property, no matter where it is, what it is, or who’s buying it. Make it, oh, 7 percent.
If the new uniform rate brings in more revenue than under the current system, make a downward adjustment – to, say, 6 percent. (Round numbers, please.)
If the new rate ends up bringing in less revenue, make another downward adjustment – not to the stamp rate, but to the size and expense of Cayman’s oversized bureaucracy.