By Mr. Propwise
I recently attended an interesting talk by a Real Estate lawyer who went into the technical details of the Additional Buyer’s Stamp Duty (ABSD) that many of us would not know well. In this article I will share some of what I learnt. However, I am not a lawyer and cannot guarantee the accuracy of everything that I’ve shared. Please treat it only as a guide – if you are looking to buy a property please seek competent legal advice. The below may contain some errors – so if you’re a lawyer or real estate professional please email me at firstname.lastname@example.org if you spot any.
How well do your know your co-investor?
One of the common areas of confusion is on the applicability of the ABSD when buying a property with a co-investor. In general, the highest ABSD that would be levied on any one of the buyers if they were to buy individually will apply on a residential property bought by unmarried co-investors. For example, if two Singapore citizens were to buy a property together, the 3% ABSD will apply if one of the buyers owned two or more residential properties. If a PR and Singapore citizen bought together, the ABSD would apply if the PR already owned one residential property.
In a weird twist, foreigners buying residential property have to pay the 10% ABSD from their first property unless they come from one of the countries that Singapore has a Free Trade Agreement (FTA) with – the United States, Liechtenstein, Norway, Switzerland and Iceland. In that case they will be treated like a Singapore citizen and only have to pay the 3% ABSD from their third residential property onwards. The speaker pointed out that a PR of the United States would not be eligible for this special treatment and would be taxed at 10% right from the first residential property.
For married couples buying together, it depends on the residency status of the buyers. For example, if the couple consists of a PR and a Singapore citizen or a Foreigner with FTA status, they do not have to pay the 3% ABSD until after the Singapore citizen or Foreigner with FTA status reaches their quota of two properties.
So when buying property with another person, you would need to be very clear about exactly how many properties they already owned and/or co-owned, and their exact citizenship status. Not knowing this in advance could land you a big tax bill that you were not expecting!
Are you sure you are buying residential property?
The ABSD is applicable on the purchase of residential property, but there is sometimes ambiguity in what exactly the definition of a residential property is. In general you can consult the URA’s zoning to determine this, but there are some cases where it is not clear. For example, you could have a residential property that has been temporarily approved for commercial use. Or the property could be located in a mixed-use zone and is being used for commercial purposes (e.g. Soho @ Central). Or it could be in a commercial zone with partial residential use (e.g. a shophouse). The tax implications for each of these could vary.
So what do you do when you are unsure? The safest way is to submit a Legal Requisition to the URA and wait for their reply, which usually takes less than a week. Another way that buyers can protect themselves is to write the type of property they are buying into the contract (e.g. Option to Purchase), so that if there is any discrepancy they still have some recourse to cancel or alter the terms of the deal with the seller. Also a competent real estate agent and conveyancing lawyer should be able to help figure these issues out.
Creative structuring of the deal could save you some tax
Especially if you are already being taxed at the 10% rate for the ABSD, you can consider using a company to purchase the property. You would still have to pay the 10% ABSD upfront, but future buyers can then avoid this tax by transacting in the shares of the company to take effective ownership of the company. In this way, the stamp duty only needs to be paid once and you could conceivably get a higher price of the property due to this tax savings.
But there are costs. Firstly, you can only get a maximum 50% Loan to Value financing from the bank as a non-individual buyer. Secondly, you will not be able to use your CPF to buy the property. Thirdly, there are costs associated with setting up and maintaining a company that could range in the thousands of dollars.
The takeaway from the talk was that you had to be very careful when buying a residential property, especially if you were buying it with someone else. Evasion of stamp duty and/or providing false information are offences with a hefty penalty – you could be fined up to S$10,000 and/or imprisoned for up to three years. There were also hefty penalties for unpaid duty. With the imposition of the ABSD, the transacting of real estate has become more complicated, so please consult a legal professional when doing so!