The British Virgin Islands (the BVI) has turned into a supernova destination for property purchases, due to an increased demand for real estate in locations that have proven themselves as safe havens during the pandemic, says Ayana Hull.
As with all important decisions, it is critical to understand the practical considerations ahead of time.
Here are the 7 key steps to purchasing property in the BVI:
1. Letter of intent
The first stage of most property transactions is the buyer and the seller agreeing the principal terms of the transaction. These terms are recorded in a letter of intent/head of terms/offer letter and a deposit is usually paid upon execution of this document. The letter of intent is usually stated to be subject to contract which means that until the sale and purchase agreement (the SPA) has been entered into, there is no legal commitment by either party.
A deposit of 10% of the purchase price is usually required by the buyer. The deposit is paid to the real estate agent or to the seller's lawyers before or upon signature of the SPA and would normally be placed on an interest bearing escrow account. The interest earned follows the deposit. If the sale proceeds normally, the seller will be entitled to the interest on the deposit at completion. If the sale does not proceed and the buyer recovers the deposit, then the buyer will be entitled to the interest.
3. Sale and purchase agreement
The SPA is normally prepared by the seller's lawyers and submitted to the buyer's lawyers for amendment or approval. It is usually made conditional on, amongst other things, property related surveys, inspections and licences, and securing adequate financing. If the buyer is unable to pay the balance of the purchase price at completion, the buyer is likely to, at least, lose the deposit. Once the SPA has been entered into, the buyer is legally committed to buy and the seller to sell, at the stated price, subject to the agreed conditions.
4. Land Holding Licence
Buyers who are not "belongers" (persons deemed to belong to the BVI) will need to obtain a Non-Belongers Land Holding Licence to hold the property. The SPA will contain this condition also. Purchasers of developed property will typically be granted a Licence for a specific property with conditions (enforced by penalties), not to undertake any alterations to the property without the consent of the Cabinet of the Virgin Islands. The application process for a Licence can take two - four months. However, a SPA will typically provision for 12 months to allow sufficient time for the buyer to secure the Licence. If the Licence is not secured within this timeframe, the SPA will typically allow the parties to agree an extension of time, or for either party to terminate (without liability to either party), in which case the buyer secures the return of the deposit.
Completion is usually arranged to take place within a specific time after all the conditions in the SPA have been satisfied. Upon completion, the seller and the buyer sign an Instrument of Transfer, which records the transfer of the property from the seller to the buyer. If the buyer is borrowing money to fund the purchase of the property, then the buyer will need to sign loan documentation at completion. The balance of the purchase price is payable at completion. It is generally upon completion that the buyer takes possession of the property.
6. Stamp Duty & Registration
Immediately after completion, the buyer's lawyers will present the Transfer to Inland Revenue for payment of stamp duty. Stamp duty is calculated as a percentage of the higher of the purchase price and the market value of the property. For non-belongers this is 12%. In each case, a copy of a recent appraisal must be submitted as evidence of market value. After stamp duty has been paid and the Transfer stamped, the buyer's lawyers will submit the Transfer for registration at the Land Registry. Personal attendance in the BVI of the buyer or seller is not required to complete, provided the original closing documents are present at completion. Many sales have occurred virtually since the global events of 2020 and buyers are very comfortable with viewing and completing virtually, especially those familiar with the property, realtor, and destination.
7. Tax Planning
There are no taxes on income, capital gains or lifetime gifts in the BVI. Neither are there inheritance taxes, estate or succession duties in the BVI on transfers of property on death. Aside from the stamp duties referenced above, there is a land and house tax assessed on property (together called property tax) which is payable each year and is assessed at a very low rate, when compared to property-related taxes assessed in other jurisdictions.
Ayana Hull is head of BVI Private Wealth and Regulatory at Harneys