2019 Tax Cuts Boost the Jamaican Real Estate Industry

On 7 March 2019, the Jamaican Minister of Finance and the Public Service (i.e., Dr. the Hon. Nigel Clarke), announced that the Government will implement a number of tax cuts to boost business growth and real estate activity across Jamaica. These new measures are part of the Government's ongoing efforts to revitalise and rejuvenate growth in the Jamaican economy in the 2019 to 2020 fiscal year, spearheaded by the leadership of the Prime Minister the Most Honourable Andrew Holness.

Three of these tax cuts, effective since 1 April 2019, directly benefit the Jamaican real estate industry, while the others benefit the industry indirectly. The tax amendments that directly affect property transactions are:

1. A reduction of all ad valorem (at value) stamp duties;
2. A reduction of the transfer tax rate; and
3. An increase in the estate transfer tax threshold.

This article will focus on these tax amendments, where relevant, as they pertain to the real estate industry. These changes are intended to make tax compliance easier and more straightforward, while stimulating economic activity in the real estate industry.

Please note that all dollar amounts quoted herein are in Jamaican dollars.

Related Topics

1. Benefits for NHT Contributors
2. Jamaican Mortgage Interest Rates
3. How to make money from Jamaican real estate

Stamp Duty Reduction

The Change

The first tax cut replaced all ad valorem stamp duties applicable for official documents with a flat rate of $5,000.

Real estate relevance?

One example to consider is the need to get a Property Sale Agreement officially stamped in order to ensure that it is admissible in the Courts of Jamaica. Prior to the change, stamp duty was calculated at a rate of approximately 4% of the sale price of a property sold or its appraised value, with the seller and buyer responsible for contributing equal portions of the stamp duty payable. In other words, both seller and buyer were responsible for paying 2% of the purchase price or appraised value.

From a real estate perspective, the change in stamp duty sees tax reductions at various stages, including on the following occasions:

• registering land;
• obtaining mortgages;
• discharging mortgages;
• leasing land;
• insurance policies;
• sale agreements; and
• transferring property.

Different rates were previously applicable, depending on the document to be stamped. With the proposed amendments, stamp duty is now set to $5,000, regardless of the document type.

In the case of a Property Sale Agreement, the parties to be responsible for paying the stamp duties will remain split between the buyer and seller, as was previously the case. However, we are not sure about what penalties for late stamping will be applicable. You should note that for Property Sale Agreements, the stamped documents are required within 30 days after they are signed to avoid any penalties.

Stamp duty is now set to $5,000, regardless of the document type.

Real Life Example

Previously, a $20,000,000 property for sale would attract $800,000 in stamp duty (i.e., 4% of the sale price), with both buyer and seller needing to pay $400,000 for stamp duty (i.e., 2% of the sale price).

Today, each party will be required to pay only $2,500 each. The resultant saving would be $397,500 for both buyer and seller. What amazing savings! In addition, for those of you looking at higher property prices, even more savings could be realised.

Reduction in Transfer Tax Rate

The Change

The Jamaican Government has reduced the tax rate from 5% to 2%, for the transfer of property and financial instruments.

Real estate relevance?

Transfer tax is imposed on all Jamaican real estate transfers, where there needs to be a transfer of ownership or title from one person/entity to another (e.g. due to a death, or property sale).

For property transactions, the responsibility for transfer tax sits with the seller. However, in practice, the buyer typically pays the transfer tax, which they later deduct from the purchase price.

Real Life Example

Previously, a $20,000,000 property for sale would attract $1,000,000 in transfer tax (i.e., 5% of the sale price), to be paid by the buyer on behalf of the seller.

Today, buyers of such properties will only have to find $400,000 verus $1,000,000 up front, since the new transfer tax rate is 2%. The seller would end up pocketing $600,000 more of the property price than is currently possible today. For higher property prices, even more savings could be realised (e.g., $900,000 in the event of the $30,000,000 property sale).

The new transfer tax rate is 2%.

Estate Tax Threshold

The Change

The Jamaican Government has reduced the Transfer Tax tax-free threshold to $10,000,000 up from $100,000, when transferring the estate of a deceased person.

Real estate relevance?

On transferring the property of a deceased person, transfer tax was only payable if the estate value minus expenses and other deductions was greater than the tax-free threshold of $100,000. Thereafter, the taxable amount was subject to a transfer tax rate of 1.5%.

Starting 1 April 2019, the tax-free threshold was increased to $10,000,000. Therefore, estate tax will not be applicable for any property valued at $10,000,000 or less. The transfer tax rate of 1.5% will still be applicable.

This move is intended encourage all unregistered Jamaican land owners to regularise their properties, so that they can use their inherited properties as collateral for developing businesses or their properties, or for other economic reasons. The Government will also benefit with an increase of Jamaican properties subject to property tax.

Real Life Example

Previously, a $20,000,000 inherited property would attract as much as $298,500 in estate tax (i.e., 1.5% of the property value minus the $100,000 tax-free threshold).

Today, the heirs of such properties will only be required to find $150,000, offering savings of $148,500.

The tax-free threshold was increased to $10,000,000.

Conclusion

All persons with a vested interest in the Jamaican real estate market have embraced these tax cuts, be they Jamaican real estate dealers, property developers, or property seekers. Why? It's simple. It is crystal clear that the various key stakeholders will realise some big wins. All in all, the nature of the tax cuts are such that they will provide a great incentive to anyone looking to own or invest in Jamaican real estate.

All the best in owning your first home or buying your next property and don’t forget to check the Jamaican properties for sale that we have to offer on Nohuts.com. You can also use Nohuts.com at any time to list any Jamaican properties you have for sale or rent.

This article is for general information purposes only and does not constitute legal, investment or other professional advice. You should seek the advice of a financial or real estate professional before making any type of investment.