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Everyday Law: Burden of transfer tax


Cecil McCarthy

Everyday Law: Burden of transfer tax

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IN HIS BUDGET speech of January 24, the Prime Minister of St Vincent and the Grenadines, Dr Ralph Gonsalves, announced the removal of an exemption from stamp duty on deeds of gift.
According to Dr Gonsalves, the measure, which was introduced in St Vincent about 20 years ago, was being abused. It had exempted from stamp duty a voluntary disposition without consideration in money or money’s worth, between parents and children, brothers and sisters, and spouses.
In St Vincent and the Grenadines, stamp duty is charged at the rate of five per cent each for the vendor and the purchaser. In a deed of gift the value of the property will determine the amount of stamp duty paid.
According to reports, there has been significant negative reaction to the change, which was proposed because, according to Dr Gonsalves, the exemption was being used by “unscrupulous persons and lawyers to evade the tax”.
You may reasonably ask what is the relevance of all of this to us in Barbados. Deeds of gift are also subject to tax in Barbados and have never during my 27 years of practice of law been exempted from transfer tax and other stamp duties. Very frequently the need for a deed of gift arises where a married couple or sometimes an unmarried couple is about to enter into a mortgage of land belonging to one partner. At this point the other partner may reasonably recommend or demand that the property be placed in both names. Sometimes the lender may also demand it as precondition for granting the loan. 
On other occasions it is a parent who would like to make a gift of property to a son or daughter to give him/her a start on the expensive road to acquiring a home.There is a clear difference between a person selling a property with a view to profit and a person making a gift of property to a relative. It is this difference in motive that prompted the exemption from stamp duty in St Vincent in the first place. 
Most persons are surprised to learn of the taxes that they have to pay on a transfer of real estate by gift in Barbados.  In our jurisdiction stamp duty and transfer tax must be paid. To ascertain the taxes, the property must be valued by the land valuation department and it is that value that must be used for the purposes of calculating stamp duty and property transfer tax.
The stamp duty is charged at the rate of $10 in every $1 000 or part thereof and the transfer tax at the rate of 2.5 per cent of the value of the property. For example, to transfer a piece of land valued at $200 000 by way of deed of gift, stamp duty in the sum of $2 000 must be paid and transfer tax of $5 000 in addition to legal fees.
A few years ago I wrote in this column on the subject of deeds of gift and made the following comment: “Property transfer tax in some cases has proved so burdensome that on occasions a party wanting to make a gift has changed his mind. As the value of land and property increases it will become more expensive to transfer land by gift.
“It is my view that especially between husband and wife and parents and children the property transfer tax should be waived.“While it is true that a system that allows a complete waiver of transfer tax on deeds of gift can be abused, it is less likely to be the case where one spouse is transferring property to another or a parent is transferring to a child.”
Despite the abuse of the system as identified by Dr Gonsalves, I am still of the view that deeds of gift between spouses and parent and child should not attract duties.
Instead, provisions should be instituted which penalise those who abuse the system. It is also possible to introduce provisions that make the possibility of abuse more difficult.
•Cecil McCarthy is a Queen’s Counsel.
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