Knowledge Is Power
“The more one knows, the more one will be able to control events”
ADDITIONAL BUYER’S STAMP DUTY
When you buy a property in Singapore, you’re subjected to Buyer’s Stamp Duty (BSD), and depending on the criteria (i.e. your residency status and the number of properties you own), you may have to pay another type of tax which is known as Additional Buyer’s Stamp Duty (ABSD)
ABSD was first introduced in December 2011, and has since progressed to higher rate over the years to moderate demand for residential property, thereby ensuring that residential property remains affordable for Singaporeans and that prices move in tandem with economic fundamentals.
The ABSD rates on or after 27 April 2023
From 9 May 2022 onwards, any transfer of residential property into a living trust will be subject to an ABSD rate that is the same as entities.
ABSD is to be rounded down to the nearest dollar, subject to a minimum duty of $1.
1 Whether owned wholly, partially or jointly with others.
2 An Entity means a person who is not an individual. It includes the following:
- An unincorporated association,
- A trustee for a collective investment scheme when acting in that capacity,
- A trustee-manager for a business trust when acting in that capacity
- The partners of the partnership whether or not any of them is an individual, where the property conveyed, transferred or assigned is to be held as partnership property.
3 Housing Developers refer to entities in the business of housing development (i.e. construction and sale of housing units) with respect to the subject property acquired. These include trustees for housing developers, which will continue to be subject to the same ABSD rate as Housing Developers.
4 As entities, Housing Developers will also be subject to the ABSD rate for entities as follows:
- For the period on or after 16 Dec 2021, Housing Developers will be subject to the ABSD rate of 35%.
Housing Developers may apply for remission of 35% ABSD, subject to conditions.
5 This 5% ABSD for Housing Developers is in addition to the 35% (on or after 16 Dec 2021) ABSD. This 5% will not be remitted, and is to be paid upfront upon purchase of residential property.
6 Trustee refers to a trustee of any trust when acting in that capacity, but excludes the following:
- Trustee for a collective investment scheme when acting in that capacity;
- Trustee-manager for a business trust when acting in that capacity; and
- Trustee for a housing developer when acting in that capacity.
WAYS TO AVOID PAYING ABSD
1. BUYING PROPERTY UNDER TRUST
When parents hold the property “on trust” for the child, the parents remain the legal owners of the property and the child becomes the beneficial owner of the same. Briefly, the nature of the child’s beneficial ownership is an equitable interest that binds all third parties except for the bona fide purchaser of the property for value and without notice. Essentially, for the purpose of this article, the child is able to assert a proprietary interest in the property against the whole world except for a bona fide purchaser who has purchased the property without notice of the trust.
When a property is held on trust by the parents for their child, what this practically means is that the personal creditors of the parents are not entitled to reach the trust property to satisfy the personal claims of the parents. Holding the property on trust also means that the parent is responsible for managing the trust property (for instance, investing a trust fund in stocks or real estate, as well as paying the relevant taxes and duties) for the benefit of the child. Further, any economic benefits from the property will accrue to the child.
Should the property earn income, the statutory income of a trustee (i.e. the parent) is subject to income tax at a flat rate of 17%. Beneficiaries (i.e. the child) entitled to a share of the trust income by virtue of the trust deed will be assessed on their share of entitlement of income at their personal income tax rates; and given the same tax exemptions and concessions as accorded to taxpayers who are resident individuals.
DUE TO A NEW MEASURES IMPLEMENTED IN MAY 2022 TO LEVY ABSD ON TRUST, MANY DO NOT CONSIDER USING THIS METHOD TO OWN MORE THAN 1 PROPERTY IN SINGAPORE ANYMORE.
2. DECOUPLING
Can I still own more than one property without having to pay ABSD?
Yes you can, and many buyers have resorted to using DECOUPLING to own 2nd property.
What is decoupling?
“Decoupling” is the process where one co-owner of a property transfers his or her share in the property to the other co-owner (in the most common situation of a property co-owned by 2 persons). As a result, the existing property will be solely owned by one owner.
What can decoupling do for me?
Decoupling frees up 1 party from holding any property under his/her name, and that would make him/her eligible to buy another property without having to pay Additional Buyer’s Stamp Duty of 17% for the second property, thus making a big savings.
Let’s have a look at the example for Mr and Mrs Lim who owns a condo in Tampines.
3. Buying Executive Condomium (For HDB Upgraders Only)
For HDB owners looking to upgrade to private property, it entails the upgrader to pay ABSD first, even if the HDB owner has no intention to own two properties. One way to avoid paying ABSD is to ensure a properly planned timeline to sell HDB and buy their next private home, or either that, they can explore buying an Executive Condominium (EC).
For HDB upgraders looking to buy an EC, they do not have to pay ABSD first, and still have the option to stay in their current HDB until the new EC TOP. They only need to dispose of their HDB within 6 months from collecting keys to their new EC.
4. Buying HDB Under Single Owner And Essential Occupier (For Early Planners)
This method is usually adopted by people who like to plan early. This entails one of the spouses to be listed as an Essential Occupier and the other to be the single owner when applying for HDB Intent To Buy.
This method does not recognize the Essential Occupier to be the owner, and hence, upon reaching the Minimum Occupation Period (MOP) of 5 years, the Essential Occupier is considered to be a first-time homeowner if he or she is to go out and purchase a private property. In this way, no ABSD is payable, Loan To Value (LTV) for home loan is at the max of 75%, and the couple gets to own 2 properties.
5. Sell One Buy Two
This method is quite straight forward, involving selling your existing property (assuming you only own one residential property together with your spouse), then, with the sales proceed from the sale, both parties will buy one property each.
While this method is common, great care must be taken while planning right from the start, as the financials of the couple has to be worked out meticulously, and also a smooth timeline transaction to ensure minimum disruption to the lives of the family.
6. Buy A Commercial/Industrial Property
This method is purely for investors who are more adventurous, have spare cash, a roof over their head, and no more spare name to park residential property.
For commercial and industrial properties, there is absolutely no ABSD at all, and from the feedback of many of the commercial and industrial owners out there, the tenancy is usually more fuss free compared to residential, as most commercial/industrial tenants are very independent.
7. Getting A Dual Key Unit
Buying a dual key unit is essentially buying a home with 2 units side by side. Most time, you will enter through a main door to a foyer area that has another 2 doors, which are the entrance to “different” unit. Tenants to each unit has complete privacy, and yet the ownership is only for one unit, which means you will avoid paying ABSD, and at the same time, you are kind of owning two units.
We do get to see more dual key concept in the past launches, as it was quite popular, but dual key concept in new condo launches is getting rare nowadays. Therefore, if you are looking for dual key concept unit, you will mostly be looking into the resale market.
8. Buying A Private Property Under One Name
This is one of the most straight forward planning, but it’s not for the faint hearted.
For couples who are financially well to start with, you can start off with purchasing a private condo under one name, and leave the other free, until you have built enough capital for the second home to be under the other spouse’s name. This requires strong financial power and heavy capital as each spouse will have to shoulder the mortgage alone. Do also note that CPF usage is also limited to one buyer’s name for each property.
Q & A
I currently own a HDB which is going to meet 5 years MOP period/has already cross 5 years MOP period, what should I do now?
There are definitely a few options that you can choose from, where you can upgrade from your current HDB to a condo, or explore the possibility of buying 2 condo unit with one of it being an investment unit, but before that, we would need to understand your situation and objectives better to assess if it is a feasible strategy.
I currently own a private property and I wish to cash out and do something about it, what is next for me?
I have a few options in which you can explore, but first, I will have to assess your current property, financial assessment, your objectives and your constraint before I am able to propose the most suitable solution.
Do I have to pay for any consultation fee?
No, you do not need to pay for any fees for consultation as it is complimentary, and I believe in a win-win relationship, in which providing value and clarity to my client is my utmost priority.
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