Originally published in the Cayman Islands Journal, September 2002
All good things, they say, must come to an end. Cayman’s temporary reduction of stamp duty on transfers of land has certainly been a Good Thing for property buyers, but it is due to pass into history on 13th November, 2002. Whether or not it will be extended or further incentives will be introduced remains to be seen – government finances may not permit. The result is that many in the property market, from investors to first time homebuyers, are thinking that this could be a good time to buy, while the offer lasts.
In November, 2001, the Cayman Islands Government introduced a temporary reduction of stamp duty - the tax charged on the market value or price paid on transfers of real estate - from the usual rates of 9% or 7.5% (depending on location) to only 5%.
Aimed at stimulating the property market, the reduced rate applies across the board, so the greatest reduction is on conveyances or transfers of property in registration sections that normally attract stamp duty at the higher rate.
To put some numbers on the reduction, take the example of someone spending CI$2,000,000 on an up-market Seven Mile Beach property. In that part of the Island, stamp duty is normally calculated at 9% of the ‘consideration’ or price paid. The buyer in that example will benefit from a stamp duty reduction from CI$180,000 to CI$100,000 - a saving of CI$80,000. And at a more modest level, the stamp duty bill on a CI$150,000 home in a district where stamp duty would normally be 7.5% will be reduced from CI$11,250 to CI$7,500 - a significant saving of CI$3,750.
Though usually thought of as a property tax, stamp duty is actually a tax on documents. It is not only levied on documents transferring land, but on other instruments, such as cheques. Where real estate is concerned, it is the conveyance or Transfer of Land that attracts the charge. To qualify for the reduced rate, this document has to be signed and delivered to the Registrar of Lands on or before 13th November, 2002.
Where the purchase is not as far advanced as the completion and transfer, there is another way to take advantage of the lower rate: the law allows duty to be assessed and paid on the contract for the purchase of property. If this is done on or before 13th November, 2002, the lower rate applies, even
if the transfer itself takes place after that date. When it is then registered, the Transfer of Land will not attract further stamp duty.
If the deal just cannot be done in time for the November 13th deadline, all is not necessarily lost - there are other special rates and reductions available. If the transfer is all in the family and not for market value, there may be no need to worry about the deadline at all. Transfers between immediate family members, i.e. spouses, parents and children, siblings, grandparents and grandchildren, where the consideration is "natural love and affection," do not attract the normal rates of stamp duty. In these cases, the stamp duty payable is a flat rate of CI$50.00, whether before or after 13 th November. Proof of the relationship between the parties, in the form of certified copies of birth certificates and marriage certificates, is required.
There is also a special scheme to help Caymanians purchase their first homes. No stamp duty at all is payable by the Caymanian first time homebuyer where house and land are transferred for up to CI$125,000 or where land (without a building) is bought for CI$25,000 or less. The concession does, however, have some strings attached: there are restrictions on the transfer or lease of the property within a five-year period and annual written confirmation that the property remains registered in the name of the same proprietor has to be produced. The Financial Secretary may also impose such other conditions as he considers reasonable.
The Cayman Islands Government has also introduced incentives for development on Cayman Brac by waiving stamp duty on purchases of land where the purchaser undertakes to develop the land within two years of the transfer. However, if the land is not developed stamp duty must be paid.
In addition to executing a Transfer of Land, many buyers take a loan to fund the purchase and sign another document - a Charge (or mortgage) - to secure the loan. Such buyers are sometimes taken by surprise by the fact that there is also stamp duty on Charges. This is charged at 1% where the amount borrowed is CI$300,000.00 or less and 1.5% where it is more than that amount. This is not affected by the current reduction.
Where stamp duty has to be paid, at whatever rate, it is important to go through the correct procedures and observe the time limits laid down. On any conveyance or transfer of land, strata title or of certain interests in land, it is the duty of the transferee to ensure that the relevant document is fully completed in accordance with its terms, signed by the transferor and transferee and certified by a Notary Public or Justice of Peace - and stamped with the appropriate duty. When it comes to registering the Transfer of Land, failure to do so in proper order will lead to delays and, in some cases, penalties.
The obligation to pay stamp duty arises at the time of execution of the Transfer of Land, but the transferee does have a grace period of 45 days to register the transfer and pay the duty. The period of 45 days begins on the date of the first signature, if the document is signed within the Islands. If it is signed outside the Islands, the key date is the first day on which it was received in the Islands following the signing. If the document is signed, but held in escrow, the 45 days begin on the day following the fulfilment of the last escrow condition.
Late payment of stamp duty will attract penalties. The penalty is calculated at the rate of ten percent per annum of the total stamp duty for the first month and thereafter at the rate of twenty percent per annum. In addition, if a document that should have been stamped has not been, it cannot be used in Court, which could be a major problem if it became necessary, for example, to prove ownership.
The Financial Secretary may at any time waive or abate the whole or part of the stamp duty payable, extend the time period or waive payment of the whole or any part of the penalty to be paid for late stamping. Anyone asking for this treatment needs to produce a good reason. An example of where the Financial Secretary may exercise his discretion, is where a transfer would not result in any change of beneficial ownership, as in the case of transfers from trustee to beneficiary and transfers between companies under common ownership.
Complicated as all of this may seem, stamp duty is only one fairly small part of the process of buying property. There are other fees to pay before the Transfer of Land can be registered and a number of steps to take, and points to watch out for, to ensure not only a trouble-free transfer of ownership, but also proper protection against legal problems that could arise later. An experienced real estate lawyer will be able to steer buyers or sellers through the process, and will be aware of the recent changes in the Registered Land Law, Stamp Duty Law and other related laws. Buyers should not cut corners in order to meet the 13th November deadline. Properly guided, however, buyers have a good reason to act soon.
There are many good reasons to invest in the Cayman Islands, and it is to be hoped that most of them will be valid for some time to come. The reduction of stamp duty, however, is marked "Use by 13.11.02".
This article has been prepared for you as a summary only, it is not a legal opinion and does not contain specific legal advice on the matters covered.