Did everyone have a reality check after Cup Match? An exciting array of great reader questions arrived at my inbox in the last couple of weeks.
So! This week we focus on a discussion of the Bermuda Primary Family Homestead Certificate.
Reader: “We are inquiring about your article a couple of weeks ago in reference to a Primary Family Homestead Exemption Certificate ... and how it avoids stamp-duty tax. We never knew that this exemption existed, and were advised to settle a family trust to own our house when we bought it. Can we take advantage of the PFHC? If we decide to take our house out of the trust, what are the costs? And would we need to apply for the PFHC?”
Well, dear reader, what appears to be an easy question concerning tax matters, never is! Why, because this law encompasses property purchases, estate planning, gifts, kinds of ownership, nationality, Bermuda status, and probably more.
The PFHC exemption is a 2005 amendment contained within the Bermuda Stamp Duty Act 1976. A stamp duty by any other name is a tax — a revenue raiser for government. Certainly, no one likes it.
Originally, several hundred years ago (1765), this odd form (to me anyway) of taxation was promulgated by the UK Parliament. But, how many readers know that the imposition of this stamp duty tax on the American colonies was a very direct incitement for the American Revolutionary War of Independence!
The US History website describes the story thus: “The Stamp Act of 1765 was the first internal tax levied directly on American colonists by the British government, imposing a tax on all legal documents and printed materials: wills, deeds, newspapers, pamphlets and even playing cards and dice. The British Empire, very deep in debt from the Seven Years’ War (1756-63), looked westward to its North American colonies as a revenue source. Arguing that only their own representative assemblies could tax them, the American colonists insisted that the act was unconstitutional taxation without representation. Relations strained to the breaking point — that ten years later (1776), the United States of America was born from the American Revolution.” (goo.gl/9ydbvz)
Bermuda’s original Stamp Duty Act was passed by Parliament in 1976. (https://goo.gl/CEFpXX). Certain types of documents (and there are many) subject to stamp duty are listed on the Bermuda Government website (goo.gl/ceLWtn).
Affidavits of declaration or affirmation, value of deceased estate, agreement or memorandum of agreement, appointments, appointment of new trustee, appraisement or valuation, awards on arbitration, bill of exchange, bond, charter party, conveyance or transfer of real or personal property, covenant, declaration or revocation of a trust, deed, duplicate or counterpart, exchange, insurance premium receipt, lease and agreement for lease, letter of allotment, marketable securities and shares, memorandum of association, memorandum of increased capital, mortgage, bond, debenture, or warrant of attorney, notarial act, partition or division, partnership agreement, policy of insurance or reinsurance, power of attorney, promissory note, release or renunciation, settlement trust deed.
The Bermuda Stamp Duty Act 1976 was the legislation that assesses a tax on the affidavit value of Bermuda assets, including the family homestead real property owned by an individual, a surviving spouse (or other similar circumstances) at his/her death.
Bermuda families who had spent generations, investing, building up (brick by brick) the family property and reducing the mortgage to zero found themselves in dire financial straights when none of the heirs, ordinary hard-working people all, could summon the cash necessary to pay the estate Stamp Duty.
One could fault the deceased owner for neglecting estate planning, but nevertheless, the result: squabbling, acrimony, litigation after which the family homestead almost always has to be sold to satisfy costly estate stamp tax assessment by probate court.
Real Bermuda property is valuable. A $1 million-plus dollar property in value will run over $100,000 tax very quickly as follows:
On the first $100,000: Nil
On the next $100,000: 5 per cent
On the next $800,000: 10 per cent
On the next $1,000,000: 15 per cent
Thereafter: 20 per cent
No one benefited.
Early in my Bermuda practice years, I saw a number of these situations. One family with four beneficiaries where each heir only received a small sum of the original estate settlement; the family homestead was lost, too, while the close family relationships were destroyed in the process.
In 2005, the Progressive Labour Party government of that time passed an amendment to The Bermuda Stamp Duty Act 1976. The amendment granted relief to families with an exemption from stamp duty for a single residential Bermuda property designated as the deceased’s primary family homestead.
See 47A of the Stamp Duties Amendment Act 2005 the “Primary Family Homestead” designation. (https://goo.gl/fA3yNW)
Who can apply for this exemption?
The law states: 47A Designation of primary family homestead by owner.
(1) Stamp duty shall not be charged in respect of the value of any residential property passing on a death (occurring on or after April 1, 2005) of an individual to whom this section applies if his (her) property is designated under this section as his (her) primary family homestead.
(2) This section applies to an individual who owns, or otherwise has an interest in, residential property which is situated in Bermuda and who has Bermudian status.
Next week — the details and the exceptions!
How to apply — during life, after death?
What it means for:
• Single individuals.
• Couples and their marital exemption.
• Both owners Bermudian.
• One non-Bermudian owner.
• Non-Bermudian parents with Bermudian children?
What if you need some other estate planning?
• Life interest.
• Joint tenancy with rights of survival.
• Tenants in common.
• Conveyed property to a Bermuda trust, or foreign trust.
• Bermuda Property held in a Bermuda holding company owned by a trust and other variations of ownership.
Readers, please keep in mind that I am not your personal financial planner. My goal is to provide you with answers, references, and thoughtful information that will help you make the best decision possible for your personal situation.
This means you will have to consult with qualified Bermuda professionals, estate attorneys admitted to the Bermuda Bar, accountants, tax and finance (CA, CPA), insurance advisers (ChFC), or investment managers (CFAs) to receive the appropriate advice that is in your best interests.
Martha Harris Myron CPA JSM: Masters of Law — International Tax and Financial Services, Pondstraddler Life™ Financial Perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: firstname.lastname@example.org