Let's start at the top. What is stamp duty?
Stamp duty is a tax. It is a levy that governments place on the processing of legal documents or the transfer of an asset. But for this blog, stamp duty is a tax on the purchase of a property.
The Cayman Islands Stamp Duty
Stamp duty in Cayman is a one-time tax paid to the Cayman Islands Government on most real estate transfers. It is a flat rate of 7.5% on the property's purchase price or deemed market value, whatever is the greater of the two, less the value of any chattels (i.e. furniture and appliances).
And yes, I get it, 7.5% seems steep. However, this is the only tax you will ever pay on your property in Cayman. There is no annual property tax, capital gains or inheritance tax in the Cayman Islands.
For general information on stamp duty in the Cayman Islands, I encourage you to read our previous blog: Stamp Duty Explained.
The background of stamp duty on pre-construction properties in Cayman
Forewarning, skip this section unless you are interested in the full backstory. Prior to the 1st of January 2020, The Cayman Islands Government permitted stamp duty to be calculated and pre-paid on raw land value for new developments (rather than on the completed developed value) in some circumstances.
It was common practice for buyers of pre-construction homes to enter into connected contracts. One contract would cover the sale of the raw land on which to build the property. A second linked contract would cover the cost of the developer to build the property.
The Buyer would pay 7.5% stamp duty tax on the raw land value only. The raw land value would be lower than the property's total developed value at completion. The result was a significant stamp duty saving for the Buyer, often up to 95%!
Cayman Stamp Duty Changes
The government ended the practice of stamp duty savings through connected contracts as of the 1st of January 2020.
While new contracts entered into from the 1st of January 2020 cannot qualify for the stamp duty savings, the position for existing contracts, pre-2020, was not clear. Would the stamp duty savings associated with those connected contracts still be available? To help explain the Cayman stamp duty changes, and the potential impact on buyers, I enlisted the help of Tim Swallow, an attorney at the local law firm, Appleby.
Stamp duty on assignment sales in Cayman
The government has confirmed that those who entered into connected contracts which qualified for the stamp duty savings, before the 1st of January 2020, will still get the benefit of the stamp duty saving when they proceed to complete the transaction.
However, a question arose about the assignment of connected contracts. Could connected contracts stamped before the 1st of January 2020 be assigned by the original purchasers to new buyers while maintaining the stamp duty savings associated with the original contracts? In other words, if the original Buyer or developer had already paid the designated stamp duty value, would the new Buyer, following an assignment of contract, be able to capitalize on the same savings? If the savings could not pass, then the new Buyer would be responsible for the full 7.5% stamp duty assessment when the property sale closed.
What is a reassignment sale?
A reassignment occurs when a purchaser of a pre-construction property agrees to transfer the right to buy that property to another prospective purchaser.
How do property reassignments work in Cayman?
The original Purchaser is known as the 'Assignor' while the person inheriting the right to buy the property is the 'Assignee'. Once the contract is assigned, the Assignee becomes the Purchaser for the purposes of the sale contract. The Assignee is then responsible for complying with all the terms of the sale contract. It is worth noting that not all development agreements permit reassignments. If you are buying a pre-construction property, we would generally recommend including a clause giving you reassignment rights, irrespective of stamp duty savings.
Current stamp duty on assignment sales in Cayman
Initially, the Cayman Islands Government stated that existing stamp duty savings would not transfer to Assignees. After a petition from developers, the government has confirmed that so long as qualifying sale contracts are assigned before the 30th of June 2021 and notarized and registered with the Lands and Survey department before the 31st of August 2021, the stamp duty savings associated with the original documents will still pass to the Assignee. It is important to note that failure to meet either of these deadlines will mean Assignees are subject to stamp duty at 7.5% on the property's full developed value (less chattels).
In short, stamp duty savings on assignment contracts remain in place until the 30th of June 2021. This is a big win for buyers and pre-construction sellers in Cayman. It is like waking up to an email saying your Monday morning meeting is postponed or your project deadline is delayed. Christmas came very early or late, depending on how you look at it!
Top tips for reassignment sale stamp duty savings.
Not all pre-2020 connected contracts qualify for stamp duty savings. In addition, Assignees should know that assigning a sale contract without the consent of a developer could render the assignment invalid. Assignees should verify whether the contract qualifies for stamp duty savings and if the developer will consent to the reassignment, before taking over any property contract.
How to benefit from stamp duty savings?
There is a very small window of opportunity for you to take advantage of stamp duty savings. First-time buyers, current assignable contract holders, investors, really anyone interested in buying in Cayman - if you can, the time to act is now.
I wish I could say the extension applied to all new developments; however, this is not the case. With the looming 30th of June 2021 deadline and dwindling inventory, my advice is to move quickly to avoid disappointment.
Let's compare all the options side by side, against what you need, to get you the best on the market.
It never hurts to see what is out there.
PS: A big thank you to Tim Swallow, an attorney at Appleby, Cayman Islands.#Building #Buyer #Community #Investing #Seller #Tips #Trends