Government seeks to amend the Stamp Duty Law (2013 Revision) to primarily help first time Caymanian property buyers, and low income members of the public.
The aim is to increase, substantially, the thresholds for concessions available to these two segments of the population when it comes to paying stamp duty on property purchases.
Additionally, Government also proposes to close a loophole in the existing law that some property developers use to minimise paying the proper stamp duty charges. Any increase in revenue that results from this measure can be used for needed infrastructure projects and other programmes.
Government has proposed 1 January 2019 as the start date for the amendments.
The Stamp Duty (Amendment) Bill, 2018, which was gazetted Wednesday, 24 October 2018, is slated for consideration, debate and voting in the coming November Meeting of the House.
Currently, the thresholds for concessions are $100,000 for purchase of raw land (land with no buildings on it) and $300,000 for purchase of apartments, condos or houses by first time Caymanian buyers. At present, such buyers do not pay any stamp duty on these purchases.
Now with the amending bill, Government seeks to further help Caymanians as follows:
• increase by $50,000 the current stamp duty concession threshold from $100,000 to $150,000 with respect to Caymanians making their first property purchase, in the form of raw land ; this means they will not pay any stamp duty for purchasing such property priced up to $150,000;
• raise by $100,000 the threshold from $300,000 to $400,000 for the first time purchase or construction of an apartment, condo or house by Caymanians; this means they are exempt from paying Government stamp duty for acquisitions up to $400,000;
• Caymanians making their first property purchase as raw land over $150,000 but less than $200,000 will also get a concession – they will pay only 2% stamp duty on such property;
• similarly, for Caymanians making their first purchase of property that has a building on it, with a value that is greater than $400,000 but less than $500,000, stamp duty is payable at 2%; and
• the bill also introduces concessions for two or more Caymanians (but not more than 10) buying property for the first time: if the value of the property with a building on it does not exceed $500,000, then there is no stamp duty to pay; and if property being purchased is raw land with a value under $300,000, then there is again no stamp duty to pay.
The bill also specifies a 2% rate of stamp duty for acquisitions with built-up property that do not exceed $600,000 and $350,000 for raw land.
Minister for Finance and Economic Development, Hon. Roy McTaggart explained, “We are willing to forego revenue to ensure that the financially disadvantaged, as well as young Caymanian families starting out in life, get a further break. This is also Government’s way of trying to help all lower-income persons in the Cayman Islands attain property ownership”.
Additionally, the amending bill addresses an increasingly used practice that some property developers have employed by insisting that the buyers of raw land , who purchase their land from those developers, have to use the same developers to construct their dwellings.
This situation of “linked property transactions” has resulted in stamp duty being paid only on the value of the raw land as opposed to stamp duty being paid on the greater value of the property once the dwelling has been completed. This practice has resulted in significant revenue loss for the Government.
With the amending bill, it is proposed that such linked property transactions, where the value of the property exceeds $300,000, will attract a stamp duty rate of 7.5%.
“We are closing the loophole whereby some property developers have sought to minimise stamp duty charges. The practice has resulted in a very material loss of revenue due to Government - revenue that we can invest in areas such as much needed infrastructure projects, as well as social programmes to help the most vulnerable members of our community,” Minister McTaggart elaborated.
Nevertheless, even in the case of a linked property transaction, if the value of the property with a dwelling on it does not exceed $300,000, the stamp duty payable is only 3% for both Caymanians purchasing property at least for the second time and non-Caymanians.
Again for Caymanian first time buyers, in a linked property transaction with the purchase price not exceeding $300,000, the First-Time Caymanian Property Ownership Concession Programme will kick in, exempting them from paying any duty. If the property purchase exceeds $300,000 but is below $500,000, the first time Caymanian buyer will pay either 0% stamp duty (if the value does not exceed $400,000) or 2% (if the value exceeds $400,000 but not $500,000).
The proposals will take effect from 1 January 2019, giving property developers involved a few months to prepare for them, if passed in the House. Furthermore, to prevent the payments becoming onerous, in a linked property transaction in which the value of transaction exceeds $300,000, stamp duty is due at the 7.5% rate but, it can be paid in two instalments of 3.75%, each tranche.