Buying a second property may be a dream come true to many but, in Singapore, it also means having to pay the hefty Additional Buyer’s Stamp Duty (ABSD).
The ABSD for Singapore Citizens buying a second property is 17% of the purchase price, or the current market value of the property, whichever is higher. It is 25% for Singapore Permanent Residents and 30% for foreigners.
The property tax was introduced by the government to cool a heated market, similar to other property cooling measures such as the Seller Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR).
However, many married couples in Singapore have found a way to buy a second home without having to pay the ABSD – in a process called decoupling.
What is decoupling?
Joint homeowners can “decouple” when one co-owner transfers his/her share to the other, relinquishing his/her ownership completely. Now, this owner will be treated as a first-timer, as if he/she has not bought or owned a property before. Meaning, he/she can buy a second property without incurring any ABSD.
Take this for example: If you decide to buy a $1m second property for investment without decoupling, you will have to pay an ABSD of at least $170,000 (assuming you’re a citizen buying a second property). But by decoupling, you can save the amount and use it for other home-related purchases such as home renovation and/or furnishings.
Property Tax
What you pay if you don’t decouple
What you pay if you decouple
Additional Buyer’s Stamp Duty (ABSD)
$170,000
N/A
Buyer Stamp Duty (BSD)
$24,600
$24,600
Total
$194,600
$24,600
Please note that the calculation only illustrates the cost of the ABSD and does not include other costs, such as outstanding home loans and the Central Provident Fund (CPF) monies to be returned. We have added a more detailed decoupling scenario at the end of this article.
Sounds good, right? Unfortunately, it is not suitable for everyone.
Some headwind for HDB owners thinking about decoupling
HDB flat owners have not been allowed to transfer their ownership to a family member since 2016. Decoupling is only allowed under these six circumstances:
Marriage
Divorce
Death of an owner
Financial complications
Renunciation of citizenship
Medical reasons
In most scenarios, decoupling will only be possible for private properties.
How can private homeowners decouple their property?
There are two ways for private homeowners to practice decoupling: by way of sale (part purchase) and through a transfer as a gift.
1. Transfer by way of sale (part purchase)
This process involves one party legally buying all the remaining shares of the property from his/her spouse. All the terms of the contract would need to be spelt out in the sale and purchase (S&P) agreement and is usually drafted by a lawyer or conveyancer.
To complete the transaction, the buyer would have to pay the seller for his/her rights to the property, as stated in the S&P agreement, and the BSD to the Inland Revenue Authority of Singapore.
Buyer Stamp Duty (BSD) with effect from (wef) 20 Feb 2018
Payment Schedule
% of Stamp Duty
First $180,000
1%
Next $180,000
2%
Next $640,000
3%
Remaining Amount
4%
Seller Stamp Duty (SSD) wef. 11 Mar 2017
Holding Period
% Seller Stamp Duty
Up to 1 year
12%
More than 1 year and up to 2 years
8%
More than 2 years and up to 3 years
4%
More than 3 years
No SSD payable
The lawyer would then use these proceeds to pay off the seller’s existing mortgages, CPF used, and SSD (if any) before transferring the ownership to the buyer.
Scenario A: Joint ownership (50-50) by John and Amanda
In this scenario, John and Amanda (both Singaporeans) are joint owners with equal shares to a condominium unit for more than four years. This is also known as a joint-tenancy, meaning both John and Amanda have a 50% share of the property.
Most properties owned by couples are shared 50-50 ownership.
In the event that one co-owner passes away, the other co-owner will inherit the entire property under the right of survivorship. This is regardless if there is a will left by the deceased.
Now imagine John earns a high and stable income. He can get a bigger loan to buy a landed property for his family to move into, but the ABSD would be a substantial cost.
How John and Amada can decouple the condo:
Current condo valuation: $1m
Existing home loan balance: $500,000 (split equally between John and Amanda since each of them owns 50% of the property)
50-50% part share selling price (Since both John and Amanda owns 50% shares each in the property): $500,000 ($1m/2)
John sells 50% shares to Amanda
Amanda buys 50% shares from John
Sale price: $500,000
Purchase price: $500,000
Pay off original home loan: $250,000
How Amanda pays: (a) 30% (Cash + CPF): 150,000 (min. $25,000 in cash)
Return to John’s CPF: $150,000 (including accrued interest)
Other expenses for Amanda (Cash/CPF): (b) BSD (Purchase price*3% (-$5,400): $9,600 (c) Estimated legal fees (2 firms): $5,500
John’s cash proceeds: $100,000
(a + b + c) Total cost for Amanda: $165,100
–
(d) 70% New home loan: $350,000 (e) Amanda’s existing home loan with the bank: $250,000
(d + e) Amanda’s new loan amount after the decoupling process: $600,000
After decoupling, John will receive $100,000 in cash proceeds, which he may use for his new home purchase that’s ABSD-free.
However, Amanda will have an increased loan amount of $600,000. This is a heavy financial burden for just a single income to support, and is not recommended for everyone.
However, not all properties are held in joint-tenancy or equal shares like the scenario above.
Scenario B: Tenancy-in-common (99-1) ownership
In this new scenario, John and Amanda are tenants-in-common. This means, instead of a 50-50% split ownership between John and Amanda, John would hold 1% share of the property, and Amanda the remaining 99%.
John sells 1% share to Amanda
Amanda buys 1% share from John
Sale price (1% of $1m): $10,000
Purchase price (1% of $1m): $10,000
Pay off original home loan: $5,000
How Amanda pays: 30% (Cash + CPF): $3,000 (min. $500 in cash)
Return to John’s CPF: $0
Other expenses for Amanda (payable Cash/CPF): BSD: $100 Estimated legal fees (2 firms): $5,500
John’s cash sales proceeds: $5,000
Total cost for Amanda: $8,600
–
70% New home loan: $7,000 Amanda’s existing home loan with the bank ($500,000 x 99%): $495,000
Amanda’s new loan amount after the decoupling process: $502,000
Now John may proceed to buy a new property without incurring any ABSD because he has effectively sold all the shares of his property to Amanda.
And under the 99-1 rule, the BSD fee payable is only 1% at $100, which is much lower than the $9,600 buyer’s stamp duty in the first scenario. Only the legal fees will stay the same.
The risk in this scenario will arise in the event of a divorce, where one party will own 99% of the house. You may battle this out in court, but it may take time and result in higher legal costs.
2. Transfer as a gift
You can transfer your share of a property as a gift without receiving any payment, but it is only possible if there are no outstanding mortgage or CPF monies tied to the home purchase.
New laws from 9 May, 2022 with regards to residential properties transferred into a living trust:
Additional Buyer’s Stamp Duty (ABSD) of 35% will now apply on any transfer of residential property into a living trust. ABSD will be payable even if there is no identifiable beneficial owner at the time the residential property is transferred into a trust.
So this new change closes a loophole. This ABSD (Trust) is to be paid upfront when the transfer is made.
Is decoupling for you?
Before decoupling your property with your spouse, speak to a certified realtor and check all the costs and risks involved. Some couples may think it’s better (and quicker) to pay the ABSD and move on, but others may be more hesitant. Wherever you fall in this spectrum, it is always prudent to get expert property and mortgage advice.
This article was originally published on Ohmyhome, your one-stop property solution.
