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Relief for first-time home buyers

Mathew Kelly is head of real estate at Hamilton Legal Ltd (Photograph supplied)

Government recently introduced bold changes benefiting first-time Bermudian homebuyers, having lifted two key restrictions relating to stamp-duty exemption.

Stamp duty is a tax charged on a property purchase. The amount charged is a percentage of the property price based on a sliding scale. Stamp duty can be a considerable amount and usually the cost is shared between the buyer and seller. Like many jurisdictions, Bermuda offers stamp duty relief for first-time buyers to help them get on the property ladder.

Previously, the law provided that first-time buyers would be exempt from stamp duty provided they met the following criteria:

1. The buyers — or their spouse if buying jointly — have Bermudian status

2. The property is either residential — ie a house or a condo — or vacant land on which a home will be built

3. The buyers are first-time homebuyers — ie they have not previously held an interest in residential property in an amount greater than 25 per cent of its market value

4. The purchase price of the property is $750,000 or less — provided that price reflects a fair market value

5. The buyers must live in the property for at least three years after the purchase or in the case of vacant land will construct a home within three years of the purchase.

Historically, the last two restrictions have created several issues for first-time buyers.

The cap of $750,000 was relatively low given that property prices have increased since this cap was introduced back in 2009, meaning less properties fell within the stamp- duty exempt price range.

If the price was one cent over $750,000, then the buyer would not be able to claim stamp-duty relief, at all.

For example, a first-time buyer paying $750,000 would pay no stamp duty, but if the price was any higher, then the buyer would pay stamp duty on the full amount of the purchase price.

The requirement to live in the property for three years meant that buyers would lose the relief if they rented out the property or sold it during this period. Importantly, first time buyers who were exempt from stamp duty were still required to pay the stamp duty at the time of purchase, then had to wait three years to be reimbursed.

On a $750,000 property the stamp duty would be $25,200, which is a significant amount for many people purchasing their first home.

Buyers who were unable to afford the stamp duty up front might be prevented from buying a property or would have to increase their mortgage lending to cover this. Even for those who had the funds, that money would be tied up for several years.

Only after three years had passed would the tax commissioner make the decision on the application for relief and refund the money. In practice this often took five years.

This delay had a further knock-on effect in delaying registration of the purchase at the Land Registry, which could not be completed until the grant of approval of the stamp- duty relief.

Similarly, the land tax department would not update its records to reflect the new owner’s details until it received notification from the Land Registry that registration had been completed.

Pending notification the land tax, bills would still be sent to the previous owner.

Given these issues, the real estate industry — particularly the real estate division of the Chamber of Commerce — petitioned the Government to address these concerns.

In a welcome move, the Government has increased the cap of $750,000 to $1 million. The stamp duty on a $1 million property is $35,700.

Not only has the limit increased but first-time buyers will be able to buy properties above this figure and still claim relief on the first $1 million — eg, if the property price is $1.5 million, the buyer would pay stamp duty only on $500,000.

The Government has also removed the requirement for a first-time buyer to live in the property for three years after purchase. As such, the buyer is now free to rent out or sell the property as they wish.

However, there is still the important issue of whether the buyer will need to pay the stamp duty up front while they await approval for the relief.

The new legislation provides that there will be a procedure for buyers to seek pre-approval for the relief in advance of the purchase and therefore there would be no requirement to pay the stamp duty up front. At the time of writing this procedure has not yet been outlined.

In recognition of the need to assist first-time buyers, perhaps the Government should also grant relief from stamp duty payable on mortgages.

Usually first-time buyers are reliant on mortgages as they typically do not have the cash available to purchase a property outright.

Given the present economic climate, the lifting of these restrictions is a positive move and will help Bermudians purchase their first property.

Mathew Kelly is head of real estate at Hamilton Legal Ltd

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Published May 15, 2023 at 7:55 am (Updated May 15, 2023 at 7:50 am)

Relief for first-time home buyers

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