Myth #25: You cannot challenge the assessment of your property’s value for land tax purposes.
“Nothing in life is certain but death and taxes.” So goes the well-known adage and this certainly holds true for land tax in Bermuda. However, while you cannot avoid the requirement to pay land tax, you may be able to reduce the sum you are obliged to pay by challenging the value attributed to your property for land tax purposes.
As a starting point, it is important to understand the basis upon which tax is levied on real property, both residential and commercial, in Bermuda. Properties are valued for tax purposes using a comparative indicator known as “annual rental value” (“ARV”). ARV is defined in the Land Valuation Tax Act 1967 as “the rent at which a valuation unit might reasonably be expected to let from year to year if the tenant undertook to bear the cost of internal repairs, and the landlord to bear all other reasonable expenses necessary to maintain the valuation unit in a state to command that rent …”. In simple terms, the ARV is the amount of rent your property would attract in the open market on a yearly basis. Your property’s ARV is set by the Department of Land Valuation of the Bermuda Government (the “Department”). Once the ARV of your property is set, tax is levied on that ARV at marginal rates, which increase as the property’s ARV increases. Generally speaking, the higher the ARV, the higher the sum levied in tax.
The Land Valuation Tax Act 1967 requires the Department to conduct a revaluation of all ARVs on the Island every five years. The last revaluation was carried out in 2009 and, as such, the next revaluation must take place in 2014. This 2014 revaluation is very significant given that market rents have declined considerably since the 2009 revaluation. Given the current rental market in Bermuda, it would be fair to expect a material decrease in the ARV of the vast majority of properties on the Island.
But how do you find out your ARV and the results of the revaluation? The Department compiles the ARVs in a document known as the “Draft Valuation List”. The Draft Valuation List must be prepared no later than December 31, 2014. A copy must remain on deposit at the office of the Director of Land Valuation and made available for inspection to any person free of charge during normal business hours.
Here’s the thing, the Draft Valuation list is just that, a draft. It can be challenged by a property owner on the basis that the ARV of his or her property is incorrect or unfair having regard to the ARVs of other properties in the Draft Valuation List. In other words, if your ARV has been set too high when compared to similar properties on the Island, you can object and seek to have the ARV lowered (and consequently pay less property tax).
Timing is very important if a property owner wishes to make an objection. Objections must be lodged with the Department in the proper form within 180 days of the Department giving notice of the deposit of the Draft Valuation List in the Gazette. If an objection is not made within that period, then the ARV in relation to your property will be final for tax purposes.
Once an objection is lodged, the Department has the opportunity to agree the property owner’s suggested ARV. If an agreement is not reached, then property owners can have their objection move ahead to a hearing before the Land Valuation Appeal Tribunal (the “Tribunal”). At this hearing, the property owner and the Department are each given the opportunity to present their cases as to the proper and appropriate ARV for the property in question. The three panel members comprising the Tribunal make their ruling based upon the evidence submitted by the parties. The Land Valuation Tax Act 1967 provides for a further appeal to the Supreme Court of Bermuda if either the property owner or the Department is unsatisfied with the decision of the Tribunal.
While property taxes in Bermuda are certain, property owners have an avenue by which to challenge the ARV as set by the Department of Land Valuation and the 2014 revaluation process provides a timely opportunity to do so. A lawyer familiar with the land valuation process and the procedure before the Tribunal can assist you in determining whether you have a good basis for challenging your ARV.
Kevin Taylor is the managing director of Marshall Diel & Myers Ltd practising in the firm’s Litigation & Advice group.
This column is for general guidance only. It should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.