All you need to know about Property Tax when buying or selling real estate in Trinidad and Tobago!
Whether you’re trying to buy or sell real estate in Trinidad and Tobago there are many types of tax that may apply to you! Make sure to understand all types of tax applicable to property in Trinidad and Tobago in order to prevent any legal consequences!
In this blog we will quickly go through different types of taxes applicable to property in Trinidad and Tobago.
INCOME TAX (also known as Value Added Tax)
Property Income Tax in Trinidad and Tobago is applied at a rate of 25%. This rate is applied to the property’s overall net income which is calculated by subtracting all the property’s operating expenses from the rental income of the property. If the property has an outstanding loan to repay, or left over depreciation allowance, then the interest payment of the loan plus 10% of the left over depreciation allowance per year can also be deducted from the net income before applying the overall tax rate to the final net income of the property. To be understand how a mortgage can increase property returns by alleviating the tax expenses please do check this article: How-can-a-mortgage-affect-your-investment-returns which shows how long term mortgages can greatly reduce property tax at the early years of all property developments.
Income taxes are applicable to any type of property that is being used to generate income (rental income, leased land etc.)
Tip: In some parts of Trinidad and Tobago, for example in Port of Spain, car parks are not taxed by authorities and can allow an investor to generate tax free income!
Capital Gains Tax
Capital gains tax is a tax on the profit you make when you sell an asset or property. This means that if you purchase a property for $5,000,000 and sell it for $6,000,000 then the taxable amount would be applied to the $1,000,000 monetary gain you make on your investment. In Trinidad and Tobago, the capital gains tax rate is 25% on the monetary gains you make from the investment and is only applicable if a property is purchased and sold within a 12 month period.
If you purchase and sell a property in a period that is greater than 1 year, then there is no capital gains tax rate applied to the property, however if you were accounting for wear and tear (depreciation) and using this to reduce your income tax expense on the property, then all the wear and tear allowance that was used for the entire life of the property’s investment must be repaid back to the tax authorities.
LAND AND BUILDING TAXES
At the moment there are no annual taxable value of property laws actively applied in Trinidad and Tobago. However the good times are soon coming to an end as the Government plans to enforce collection before 2020. The land and building tax will be calculated as a percentage of the Annual Taxable Value of the property. This includes both the building and the land value.
Calculating the annual taxable value differs per property type.
For commercial properties, the annual taxable value is the expected annual rental value of the property and not the present market capital value of the property. Once the annual rental value is calculated, a 5% applicable tax rate is applied and due on a yearly basis. Unlike income tax, there is no way to reduce the annual rental value by taking a loan or using wear and tear allowance so this tax is going to be unavoidable to the larger investors in Trinidad and Tobago.
For Industrial properties, the annual taxable value is 6% of the installed costs of plant, machinery and associated buildings. Once the annual taxable value is calculated, a 6% tax rate is applied and due on a yearly basis.
For agricultural property, the annual taxable value is 2% open market capital value of the property. Once the annual taxable value is calculated, a 1% tax rate is applied and due on a yearly basis.
Stamp duties are a mandatory fee applied to certain legal documents, several of which are required for real estate transactions in Trinidad and Tobago. Stamp Duty fees are calculated as a percentage of the value of the property being bought or sold. Some properties are exempted from these fees, while others are subjected to specific rates as outlined by the Inland Revenue Division of the Ministry of Finance. For more information on calculating stamp duties for different property types in Trinidad and Tobago CLICK HERE!
Inheritance Tax On Property
When planning a family succession plan, most parents or guardians aim to pass on land/property to their children. Luckily, in Trinidad and Tobago we have no inheritance tax on property making property a prime long term investment for succession planning and passing family inheritance from one generation to the next!