Buying Cayman property as part of a land purchase and development contract package? Act now to beat 1 January 2019 stamp duty changes07 Nov 2018
Those looking to benefit from the favourable stamp duty treatment facilitated by developers who offer property in the Cayman Islands as part of a land purchase and development contract package will need to act quickly if they want to beat the changes proposed in The Stamp Duty (Amendment) Bill 2018 (‘Bill’).
UPDATE: When the Bill became The Stamp Duty (Amendment) Law, 2018, there was a significant alteration in wording which allows developers with planning permission in place by 30 June 2019 to have a year to take advantage of the pre-existing regime for stamp duty on ‘linked property transactions’, provided they enter into their contracts before 31 December 2019. For more information, please see our piece Welcome delay in change to Cayman Islands Stamp Duty law gives developers another year before Stamp Duty increase. For the current position on stamp duty and linked property transactions see our piece: What is the new stamp duty position on linked transactions?
How is stamp duty applied to property purchases?
Generally, you can expect to pay stamp duty at a rate of 7.5% on the purchase of real estate, whether it be undeveloped ‘raw’ land, or developed land with buildings on it. Concessional rates and waivers are available in certain circumstances for Caymanian first-time property buyers.
Historically, some developers have sought to minimise stamp duty payable by their clients by structuring their contracts in two interdependent parts: a contract for the sale of raw land on which the building will be constructed; and a development or construction contract to be carried out by the developer or a related company.
Under the current law, structuring the deal in this way has resulted in stamp duty being assessed against the value of the raw land only, without taking into account the value of the building that the developer has agreed to construct on the land, provided that the agreement for sale is presented to the Lands and Survey Department for assessment before any work has been carried out on the land.
What will change under the proposed law?
Assuming the Bill is passed unamended, this favourable stamp duty treatment will no longer be available from 1 January 2019, as the two contracts will be considered a ‘linked property transaction’, with stamp duty being assessed on the aggregate value of the contracts.
The Bill proposes that where the total value of the property in such linked property transactions exceeds CI$300,000 it will attract stamp duty at a rate of 7.5% on the total value (ie. the value of the raw land plus the building, once constructed). This will be payable in two instalments of 3.75% each, with the first being payable within 45 days of the agreement being entered into, and the second when the ultimate conveyance or transfer is signed by the buyer.
Discounts for lower value developments
The Bill proposes that if the total value of the land and the proposed building, which together constitute a linked property transaction, does not exceed CI$300,000 then stamp duty will be payable at a discounted rate of 3%.
When will this take effect?
Assuming the Bill makes it through the Cayman Islands Legislative Assembly unchanged, the new provisions will take effect from 1 January 2019, giving investors and property developers a few months to prepare.