- April 30th, 2012
- in Yachting
Through the Open Window
Leveraging Cross-Jurisdictional Opportunities for BVI Property Ownership
A rare congruence of exemptions under the United States and British Virgin Islands tax codes has prompted US citizens holding BVI property to undertake inter vivos transfers to their heirs during 2012.
In the US, the current federal lifetime gift tax exclusion of up to $5 million, which is set to expire at the end of 2012, has provided an opportunity for estate planning for high net worth individuals, as it holds the potential to reduce the value of their taxable estate upon death. With current federal estate tax rates at 35%, this is an exclusion of substantial value.
This dovetails nicely with the BVI’s existing exemptions under the Non-Belonger’s Landholding Regulation Amendment Act 1994 which exempts transfers to spouses, children, or grandchildren—or to trusts whose beneficiaries are spouses, children, or grandchildren of the property owner. The usual rate of Stamp Duty payable on transfers is 5-12% of the market value of the property, and with the value of BVI properties having remained steady throughout the economic downturn, these exemptions are likewise valuable.
An understanding of the BVI property market is helpful in presenting a complete view of the tax advantages mentioned above, as well as general tax advantages in BVI property ownership.
The BVI Property Market
The BVI has a robust high-end property market, but there are also plenty of options. Land sales can start in the hundreds of thousands for developed property. However, both raw land and developed properties can run into the tens of millions. The market is deep and varied. There are seaside properties with marina facilities, a thriving residential resort industry offering condominiums and stand alone villas with good potential for rental income, as well as unique properties in a variety of reputable and/or exclusive neighbourhoods. The variety of islands, islets and cays offer as much or as little seclusion as might be desired. Some properties are accessible only by sea, but this has not presented an inconvenience, since property owners are also often yachters. New superyacht and megayacht facilities have lent a new dimension to the islands, with two new annual regattas causing stayover visitors to pour into the available accommodations, a boon for second-homeowners who make their properties available for rent when not in use.
This year has shown a marked upturn in sales, suggesting that the economic slowdown is nearing its end in both the US and the BVI, while property values have remained stable.
A landholding licence is required for all who are not BVI citizens or belongers. This is called a Non-Blonger’s Landholding Licence. While you’ll hear the term “non-belonger” a lot, do not be intimidated. It’s simply legal speak for someone who is not a citizen or permanent resident of the BVI. The licensing process is designed to facilitate property ownership for those who truly want to own a home in the BVI while discouraging speculation in real estate and protecting the heritage of the people of the BVI. The prospective purchaser must provide evidence of identity, means, and character along with an appraisal and the agreement for sale, and certain other property details. If you intend to rent the property while it is not in use, this will have to be specifically stated in the licence and a trade licence for property rental obtained. The landholding licence is personal to the holder and applies only to the specific property mentioned within it. A separate licence is needed for each property.
All land is registered in a central Land Registry, which reflects the details and history of ownership, and other interests in the land such as mortgages (called charges), leases, and easements. Evidence of title is the land register for each property. Title is government guaranteed, with a fund to compensate for any loss caused by fraud or manifest error. Title insurance is therefore not used. An instrument of transfer in the standard form must be registered to effect ownership changes. Documentary proof of ownership is the land register for the particular parcel in respect of the property purchased. The original is held in a register book at the Land Registry, but a certified copy can be obtained. An owner should also have a registry stamped original or certified copy of the Transfer Instrument passing title from vendor to purchaser.
Life too taxing? The BVI provides a break
There is no capital gains tax, income tax or inheritance tax. There is a single tax on acquisition of the property which is a stamp duty 12% of its market value (5% for transfers otherwise than on sale), or 1.5% stamp duty on acquisition of a lease of the property. However, there are several stamp duty exemptions for close transfers, as set out in the introduction. There is an annual property tax comprised of 2 elements: land tax ($50 for the first half-acre or $150.00 for the first acre or part thereof in excess of half an acre, and $50.00 for each additional acre or part thereof), and house tax 1.5% of the value of the buildings, assessed based on size and use. There are no other property taxes.
In addition, the current US federal gift tax exclusion complements the BVI stamp duty exemptions for close transfers, making 2012 an ideal time for property owners to transfer properties to their spouse, children or grandchildren, or into trust for those individuals.