An introduction to stamp duty
Article first published in The Royal Gazette, Legally Speaking
Stamp duty in Bermuda is a tax applied to documents, known as “instruments” under the tax. Any instrument signed in, or brought into, Bermuda is potentially liable to stamp duty, unless specifically exempt.
The Stamp Duties Act 1976 describes instruments chargeable to stamp duty, stipulates the consequences of failure to stamp, sets out the method for adjudication of stamp duty and stipulates the duty amount, the time limit within which the instrument is stampable and any exemptions from duty.
Examples of common stampable instruments are insurance premium receipts, conveyances, mortgages, reconveyances (which release mortgages), voluntary conveyances and affidavits.
It is important that liable instruments are properly stamped. Unstamped liable instruments are not generally admissible in court and so unenforceable i.e. of no practical use.
A normal purchase in a store does not attract stamp duty, as there is no instrument – good title to the item is transferred by the act of delivery and payment.
Stamp duty is applied to instruments by way of stamps or by franking machine. Stamps and franking are available from Government cashiers, on payment of the tax, at the Government Administration Building, 30 Parliament Street, Hamilton. In addition to payment, Government cashiers require a certified copy of any instrument submitted for franking. If duty stamps are being purchased there is no requirement to submit a certified copy.
Many instruments are exempt if Government is one of the parties. In such circumstances it is usual to submit the instrument for adjudication as exempt, but nevertheless an adjudication fee is payable.
If the Tax Commissioner is asked to adjudicate on stamp duty liability, a Government fee is payable (currently $202). The fee, which is in addition to any duty assessed as payable, typically rises annually.
In recent years, there have been delays with adjudications. It is understood the Office of the Tax Commissioner is committed to eliminating the adjudications backlog. A new Tax Commissioner and Assistant Tax Commissioner with stamp duty responsibilities were recently appointed.
Appeal against adjudication is to the Supreme Court within 14 days, but if appealing, the disputed adjudicated duty must be paid in advance.
If a transaction is liable to stamp duty, it must not be split into more instruments than ordinarily necessary in order to reduce the overall duty payable. The onus of proof is on the person asserting there is no splitting. Evading duty by “splitting” is an offence.
Every instrument within a transaction is liable to stamp duty, unless specifically exempt e.g. for a house purchase: there may be a sale and purchase agreement, a deed of conveyance and possibly a mortgage deed – all are separately stampable, even though relating to the same subject matter.
Notwithstanding any provision or stamp duty indemnity provided for in an instrument, all executing parties are jointly and severally liable for due stamp duty, or for failure to properly stamp. Additionally, any person who relies on or presents an unstamped instrument liable for duty is also jointly and severally liable.
Generally speaking instruments are stampable within 30 days of execution by all parties, though there are exceptions e.g.:
instruments executed outside Bermuda become stampable within 30 days of arrival in Bermuda; and
an affidavit of value of a deceased’s estate allows for 90 days.
For real estate there are two main transfer exemptions, firstly Primary Family Homestead and secondly a first-time purchase by a Bermudian, or a Bermudian and spouse, for a value of no more than $750,000. Certain restrictions apply.
Primary Family Homestead designation can be applied for to the Tax Commissioner by a Bermudian property owner, or by an estate representative after an owner’s death. Such designation exempts a property from the value calculation of a deceased’s estate for stamp duty (death tax) purposes. Such exemption can be for the whole of a property lot, or part of the lot e.g. if a home is jointly owned with a spouse.
Such designation can only apply to one property, but designation can be changed by application to the Tax Commissioner. If you own several lots, choose the most valuable lot for designation.
Owners of multiple properties are incentivised to apply for designation during their lifetime and not leave tax to chance after death. An estate representative is obliged to designate the property the deceased resided in at the time of death. If the deceased owned more than one property and resided in none of them at death, Primary Family Homestead designation is only available on the lowest value property.
Primary Family Homestead designation can avoid stamp duty liability on a transfer to children, but the children have to wait until after the parent’s death. That makes it advantageous for a parent to keep control of the property right up until death.
A property transfer to children during a parent’s lifetime will attract stamp duty.
Owners and would-be owners of property should consider their unique circumstances for estate planning purposes and obtain appropriate legal advice to be sure desired wishes are attained – and in the least taxing manner possible.
