Gifting a home in Bermuda: a review of your options
A home can be gifted to a spouse, or the next generation either during an owner’s life, or as an inheritance. Either way has pros and cons, including stamp duty (tax) considerations.
A gift of unregistered land, while an owner is living, is known as a voluntary conveyance.
There are, however, stamp duty consequences based on the value transferred. This value can be reduced, for stamp duty purposes, if a life tenancy is reserved for the former owner.
While stamp duty is payable on spousal voluntary conveyances, it is not on spousal inheritances — ie, after the death of the owner.
If a home is registered at Government’s Land Title Registry, reservation of a life interest is not possible. However, a similar outcome can be achieved, with a leasehold interest reserved, instead of a life tenancy.
Most Bermuda homes are unregistered; only homes purchased or mortgaged since August 2018, or which have been voluntarily registered, are considered registered. Such homes are beyond the scope of this article.
With a life tenancy, the life tenant retains control for life, including entitlement to rent. On death of the life tenant, a life tenancy automatically ends.
Typically, stamp duty is lower for lifetime gifts than for those inherited.
After signing and dating, a voluntary conveyance is submitted to the Tax Commissioner’s Office for adjudication, with a government fee of $212.
Stamp duty is calculated at the following rates: on the first $100,000 of value, 2.5 per cent; on the next $400,000, 3.15 per cent; on the next $500,000, 4.2 per cent; on the next $500,000, 6.3 per cent; and on any value over $1.5 million, 7.35 per cent.
Based on the above, stamp duty for a real estate gift valued at $500,000 is $14,700.
Stamp duty on an inheritance is approached differently. A home’s value is pooled with the value of all other assets of the deceased. All assets and liabilities are itemised in an affidavit of value.
The applicable stamp duty is calculated at the following rates: on the first $100,000, nil; on the next $100,000, 5.25 per cent; on the next $800,000, 10.5 per cent; on the next $1 million, 15.75 per cent; and thereafter, 21 per cent.
So, if the net value of a deceased’s estate is $500,000, stamp duty (death tax) payable is $36,750.
Assuming a home is the only asset and valued at $500,000, then stamp duty payable after death is $22,050 more than under a voluntary conveyance during the deceased’s lifetime.
Designation of a home as the “primary family homestead”, which can only be done against one home, reduces a deceased’s estate by the value of that home for death tax purposes.
Such designation can be made by the owner while living, or by executors after an owner’s death.
The availability of a primary family homestead designation makes a voluntary conveyance typically less financially attractive. However, for owners of multiple properties one or more voluntary conveyances may be financially attractive.
A voluntary conveyance unfavourably results in loss of control of a home, especially if it is the only significant asset the former owner had.
The new owner’s signature is required to sell, or mortgage — eg, for any medical expenses or repairs — or to let out the home. Some disadvantages such as rights to residence or to let out and receive rent can be overcome by the former owner reserving a life interest in the home.
Circumstances and needs can change; the new owner can, for example, go bankrupt, want to sell the property, or get divorced and such can result in a court order for sale of a home from under the transferor.
Additionally, a parent may become disenchanted with a new owner child, and want someone else to benefit instead, but after a voluntary conveyance it can be too late. Even if a new owner is willing, reversing a voluntary conveyance repeats costs and stamp duty.
Despite those unattractive prospects, some homeowners seek peace of mind in gifting a home to a spouse or child by way of a voluntary conveyance.
Voluntary conveyances are potentially useful for estate planning but should only be used after considering alternatives such as disposal by will directly to beneficiaries, or to a will trust.
First Published in The Royal Gazette, Legally Speaking column, December 2024
