Stamp Duties Amendment Act 2022

Stamp Duties Amendment Act 2022

The enactment of The Stamp Duties Amendment Act 2022 (“SDAA 2022”) earlier this year, amending the provisions of, inter alia, Head 31 of the Stamp Duties Act 1976 (“SDA 1976”), brought a welcome cost saving to those wishing to refinance an existing mortgage where the principal sum is less than $750,000.00. 

A borrower wishing to re-finance such an existing mortgage has two options:

1. To refinance by way of an assignment of mortgage, i.e. the initial lender assigns the existing mortgage to the new lender, passing on all the terms and conditions of the existing mortgage. 

• To re-pay the existing loan and enter into a brand new mortgage with a new lender.

Option 1

Head 31(ab) of SDA 1976 provides that an assignment of mortgage (where the principal amount is less than $750,000.00) is exempt from stamp duty.  Whilst this provides an attractive re-finance option from a cost perspective,  assignee banks (i.e. those taking on the remaining term of an assigned mortgage) have been reluctant, particularly recently, to take on the covenants, conditions and obligations contained in any given existing mortgage and prefer to use their own mortgage lending documentation.  This can be overcome in some circumstances by incorporating a deed of variation into the documentation, but often the lending institution requires option 2, which until SDAA 2022, incurs additional costs. 

Option 2

This option requires a deed of reconveyance to be executed by the existing lender, to reconvey the subject property from the existing lender to the borrower, and a new mortgage deed to be signed between the borrower and the new lender.  This arrangement enables the new lender to use its own documentation thereby incorporating its own terms and conditions into the new mortgage deed, which are usually standard to each bank.  Prior to SDAA 2022, however, this option incurred higher costs to the borrower as stamp duty was incurred on each new deed in the following manner:

• the deed of reconveyance pursuant to the provisions of Head 31(v) SDA 1976, namely at a rate of one twentieth of 1% of the total amount originally borrowed;
• the new deed of mortgage pursuant to the provisions of Head 31(i) SDA 1976, namely at a rate of 0.5% of the amount borrowed from the new lender (or 0.25% if that amount is less than $400,000.00).

Given the borrower would have already paid stamp duty on its initial mortgage documentation, it is not surprising that a borrower may have found it cost prohibitive to have to pay a similar sum again and may have, therefore, been put off pursuing such a re-finance arrangement. 

SDAA 2022 added a new category of exemption to Head 31(ab) such that a refinancing structure under option 2 above may now be exempt from stamp duty, where the principal sum being secured is less than $750,000.00.   

This is beneficial to a borrower who may now take advantage of competitive interest rates, or other benefits, without being exposed to further stamp duty, and whilst enabling a new lender to proceed with its preferred documentation.

There must be an adjudication process to confirm the exemption, which requires that upon completion of the new mortgage transaction, the executed deeds will be submitted to the Office of the Tax Commissioner to assess the stamp duty exemption.  We are informed that the documents will be endorsed by the Tax Commissioner’s office once they have assessed that the exemption is applicable. 

It should be noted that the exemption applies only to the amounts being borrowed for the refinance only.  Any additional funds borrowed beyond the amount required to repay the original principal sum will incur the standard stamp duty for mortgages pursuant to the provisions of Head 31(i).

Finally, it should also be noted that proceeding with a re-financing arrangement under Option 2 will trigger compulsory title registration of your property, if title to your property is not already registered.  This adds a Government registration fee to your re-finance structure, which fees ranged from $100 to $1,300 based on the value of your property.  For further information on re-finance structures please contact MJM Limited’s Property Team.