Purchasing a residential property is one of the biggest investments you’ll make in your life. It’s a decision that requires careful planning, research, and financial stability. However, things can become more complicated when you’re a buyer in Singapore.
Did you know that you could be paying an Additional Buyer’s Stamp Duty (ABSD) on top of the regular stamp duty? ABSD is a tax imposed on certain residential property purchases and can add up to a significant amount.
But don’t worry, there are legal ways to avoid paying ABSD, and in this blog post, we’ll be discussing some of them. So, if you’re planning to purchase a residential property anytime soon, keep reading to learn how you can save some money by avoiding the ABSD.
ABSD in Singapore 2023
In Singapore, Additional Buyer’s Stamp Duty (ABSD) rates will be raised from April 27, 2023, as announced by the government on April 26, 2023. ABSD is an additional tax on top of the existing Buyer’s Stamp Duty (BSD) on residential properties. The ABSD liability depends on the buyer’s profile, the count of residential properties owned, and if the residential property is held in a living trust.
There is also a transitional ABSD remission for residential properties acquired before April 27, 2023, subject to certain conditions being met. The ABSD rate for foreigners buying residential property doubles from 30% to 60%, while Singaporeans buying their second residential property will be subject to an ABSD rate of 20%. For Permanent Residents buying their second residential property, the ABSD rate will increase to 30% from 25%.
Alongside the ABSD, the Additional Conveyance Duties for Buyers (ACDB) has increased from up to 46% to up to 71%. Cooling measures are the third round of measures implemented since December 2021 and come after a 3.2% increase in Q1 2023. As a result, married couples comprising at least one Singaporean spouse may apply for the ABSD remission, provided they sell their first residential property within six months of purchasing the second home.
Decoupling (Transfer of Ownership)
Decoupling, or transfer of ownership, is a popular method used by property buyers to avoid paying ABSD when purchasing their second or subsequent residential property. The strategy involves Spouse A transferring their share of the property to Spouse B, who then purchases the second property under their name. This way, Spouse A does not need to pay ABSD for the second property as they no longer own any properties. However, it is important to note that decoupling comes with its own costs.
Transferring property ownership requires payment of Buyer’s Stamp Duty (BSD) by the spouse who is receiving the transfer. There are also conveyancing fees and Additional Conveyance Duties if the property is sold within the first three years of purchase. Before deciding to decouple, one must carefully consider whether either spouse can handle the new mortgage as a sole owner, including returning CPF monies with accrued interest.
It is worth noting that decoupling does not completely avoid paying ABSD, as buyers will still need to pay it upfront. However, they may be able to claim it back later. Another option is to buy the second property under a trust for their children, although this comes with its own perils as properties held on trust are subject to a 65% ABSD payable.
Decoupling is only applicable to private property owners, as HDB resale part-share is only allowed for transfer between parents and children or buying over an ex-spouse’s share. For those who have adequate finances, commercial properties are a viable option as they do not impose ABSD. However, they tend to cost more and often require an 8% GST charge. Careful weighing of the pros and cons is necessary to make an informed decision.
Trust ownership is a popular way to avoid Additional Buyer’s Stamp Duty (ABSD) when buying a second residential property in Singapore. However, it is essential to understand the potential risks of this method. Firstly, buying a property under trust means that the assets will no longer be owned by the original owner.
The trustee will own the property, and it will be counted towards the number of properties owned by the beneficiary, leading to ABSD implications for any future property purchases. Moreover, if a trust is set up solely to avoid paying ABSD, the authority may claw back the ABSD plus penalties.
Another risk of buying a property under trust is the potential loss of control over the assets. For instance, if a child is listed as the beneficiary, they may not want to abide by the parents’ wishes for the property. They may decide to sell or mortgage the property in the future, which the trustee has no control over. Also, banks may not approve loans for properties under trust for a child who is below 21 years. This is because they will not have any financial capacity to serve the loan. Hence, the child’s credit rating may also be negatively impacted if their parents jeopardized mortgage repayments.
That being said, buying a property under a trust may be an excellent idea for parents who wish to provide a home as a gift for their child. This is because it defrays the ABSD and enables them to purchase the property now at a lower price rather than buying it later at a higher cost.
It is essential to weigh the pros and cons and work with trusted professionals to ensure that the trust document fulfills the required conditions to qualify for an ABSD refund if required. In conclusion, potential buyers must be wary of the risks involved while opting for trust ownership as a means of avoiding ABSD when buying residential properties.
Purchase an Executive Condominium
One way to avoid paying the hefty Additional Buyers Stamp Duty (ABSD) when buying a residential property in Singapore is by purchasing an Executive Condominium (EC). Upgraders who are planning to sell their existing flat and upgrade to an EC can do so without having to pay the ABSD first.
This means that they won’t have to come up with a large amount of cash or CPF savings upfront. However, they still need to dispose of their HDB flat within six months of buying the new property. The ABSD for an EC can also be paid using CPF, but for resale properties, it must be paid in cash first through a lawyer.
It’s important to note that when buying an EC, there are income and ownership restrictions. Eligible buyers can only include Singaporean citizens and permanent residents, and their household income must not exceed S$16,000. Additionally, there is a five-year minimum occupation period before the property can be sold to Singaporeans or PRs. After that period, the unit can be sold to Singaporeans, PRs, or foreigners.
Buying an EC can be a good option for upgraders looking for a more affordable way to upgrade to a private property without the ABSD. They can enjoy the same facilities and amenities as a private condominium without having to pay the extra tax. As a government-subsidized project, the prices of ECs are generally lower than private condos, making them a more accessible option for families looking to upgrade their living standards. 
Commercial properties offer an attractive opportunity to avoid incurring ABSD when buying your second or subsequent property in Singapore. Unlike residential properties, commercial properties are not subject to ABSD, which means that investors can purchase them without having to pay the extra stamp duty. Additionally, commercial properties tend to offer higher rental yields than residential properties, making them a potentially profitable investment.
However, it is important to note that commercial properties are typically more expensive than their residential counterparts, requiring a higher cash outlay and an additional 8% GST charge. So, while commercial properties may be a viable option if you have adequate finances, it is crucial to weigh the pros and cons carefully before making your purchase.
Furthermore, it is worth considering factors such as the location and type of commercial property you are interested in, as these can impact the potential for rental yield and return on investment.
Overall, commercial properties offer a promising option for investors looking to avoid ABSD and generate income from their property investment.
Refund of ABSD
When buying a residential property in Singapore, the government imposes Additional Buyer’s Stamp Duty (ABSD) to curb rising property prices. The ABSD can easily add another 20% to 65% on top of the regular Buyer’s Stamp Duty (BSD), making the total property cost more expensive. However, a married couple may be eligible for ABSD remission if they meet the remission conditions under the Stamp Duties (Spouses) (Remission of ABSD) Rules.
If the couple purchases a residential property jointly, including a Singapore Citizen spouse, and both spouses do not own any residential property, full ABSD remission may be applicable. If a married couple purchases a second residential property jointly, ABSD remission may also apply, provided certain conditions are met.
The couple cannot own interest in more than one residential property each at the date of purchase of the second property, ABSD has been paid on the second residential property, the first residential property is sold, and the married couple has not purchased or acquired any other residential property since the purchase of the second residential property.
The application for refund must be made within six months of the sale of the first residential property. Married couples are advised to start marketing their first property early at realistic prices to ensure they can meet the six-month sale timeline for the ABSD refund.
There are also subsidized schemes available in Singapore to help first-time buyers reduce their property costs and avoid ABSD. The biggest program is the Housing Development Board (HDB) resale grant, which gives Singapore citizen households up to a total of $160,000 in cash to use towards the downpayment and other expenses when buying an HDB resale flat.
Another option is the Executive Condominium scheme, which combines features of both public housing and private condominiums. ECs are sold by developers and eligible buyers can get grants of up to $30,000. It’s important to note that ECs come with restrictions such as a minimum occupancy period and a resale levy. Another subsidized scheme is the Family Grant, which provides $50,000 in cash to married or engaged couples buying their first HDB resale flat. Singles can also get $25,000 in cash.
Finally, the Proximity Housing Grant is aimed at encouraging families to live with or near their parents. Eligible Singaporean citizens can receive up to $30,000 in cash when buying a resale flat near their parents’ home. It’s important to note that some of these grants have income and other eligibility criteria, so be sure to check the details before applying. With these subsidized schemes, eligible buyers can significantly reduce their property costs and potentially avoid ABSD.
Joint Tenancy vs. Tenancy in Common
Joint Tenancy vs. Tenancy in Common is a decision that homeowners must make when purchasing a residential property. Joint Tenancy allows for the right of survivorship, where the surviving owner takes over the interest of the deceased owner.
This arrangement is common for married couples. On the other hand, Tenancy in Common is a manner of holding a property in separate shares in the form of a percentage split. The right of survivorship does not apply in this scenario. Instead, the interest of the deceased owner is distributed according to their will or the Intestate Succession Act.
Due to the implementation of Additional Buyer’s Stamp Duty (ABSD), homeowners have increasingly utilized Tenancy in Common for private properties. This holding method allows for a higher loan amount and the ability to use both owners’ CPF monies, reducing the cash upfront. Decoupling, which is the removal of one owner from the property, is also easier with Tenancy in Common. When considering the percentage split, it is crucial to calculate the remaining owner’s ability to take up the loan amount in the event of decoupling.
Furthermore, the amount of CPF monies used by the exiting party will significantly affect the split percentage, making a 99/1 split less feasible in some cases. Additionally, homeowners must ensure that they are comfortable with the cash amount needed to service the monthly mortgage after CPF deductions. Trust and a good relationship between co-owners are also essential factors to consider when choosing between Joint Tenancy and Tenancy in Common.
Ultimately, homeowners must consult experienced and up-to-date conveyancing lawyers who specialize in their desired holding method. With proper planning and consideration, homeowners can avoid ABSD and make informed decisions while investing in multiple properties in Singapore.
Use of CPF
Firstly, one way to legally avoid paying ABSD when purchasing your second property is to use your CPF. Note that if you are purchasing a new development, it is possible to use your CPF immediately to pay for the ABSD.
However, if you are buying a resale property, you will first need to pay in cash through your lawyer before applying to pay the ABSD using your CPF. It is crucial to ensure that you have adequately planned and have enough CPF savings for your second property before using this option.
Another way to avoid the ABSD is through decoupling or the transfer of ownership. This method involves the transfer of property shares between spouses so that the spouse purchasing the second property will not be considered the owner of two properties. This means that they will not be subject to the ABSD payment. However, be aware that transferring shares comes with its own costs, including the Buyer’s Stamp Duty and conveyancing fees. You also need to ensure that you or your spouse can handle the mortgage as a sole owner.
You can also purchase a Commercial property instead of another residential property. Unlike residential properties, Commercial properties are not subject to ABSD but require a larger cash outlay and an additional 8% GST charge. It is essential to discuss the pros and cons and ensure that you have adequate finances before opting for this option.
For those buying an Executive Condominium (EC), there is no need to pay the ABSD, which is required for private condominiums, even if you are upgrading from your existing property. However, you will still have to sell your flat within six months of purchasing the EC.
Purchasing a second property under a trust for your children is also an option. While this option can be viable, you will need to pay a 65% ABSD on the transfer of any residential property to a living trust from 9 May 2022 onwards. This means that your children will be unable to apply for an HDB flat and might suffer the ABSD charge when acquiring their property.
Remember, it is crucial to explore all your options carefully and consider the associated costs before proceeding to purchase your second property.
Working with a Professional Real Estate Agent
When it comes to navigating the complex world of ABSD and property ownership, it pays to have a professional real estate agent by your side. Not only can they help you understand the legal requirements and options available to you, but they can also advise you on the best strategies for minimizing ABSD and optimizing your returns on investment.
A skilled real estate agent can guide you through the process of decoupling, where one spouse transfers their share of the property to the other to avoid ABSD. They can also offer advice on the other less common methods such as pledging assets, which can help you achieve your financial goals without incurring heavy upfront costs.
Furthermore, a real estate agent can help you understand the nuances of buying under a child’s name – a strategy that comes with its own set of unique challenges and limitations. They can also guide you through acquiring commercial properties as a way to legally sidestep ABSD and potentially earn higher rental yields.
Ultimately, working with a professional real estate agent is crucial when navigating the process of buying a residential property while avoiding ABSD. They can help you make informed decisions, ensuring that you fully understand the legal consequences of each strategy and can select the approach that best suits your financial goals and unique circumstances.