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How will Singapore’s new tax rules affect high net worth buyers?

Every week, Mansion Global poses a tax question to real estate tax lawyers. Here is this week’s question.

Q: What are the implications of Singapore’s new tax rules for high net worth buyers?

In May, Singapore imposed new tax laws intended to target super-wealthy buyers who buy homes transferred into living trusts in an effort to close a tax loophole used by buyers who buy multiple homes held in trusts that hide their identities.

New stamp duty regulations mean that “purchasing additional residential properties in Singapore is becoming increasingly complicated and expensive,” said Sim Ho Ong, managing director of Corporate and Finance and head of Private Wealth and Family Offices. at Drew & Napier LLC.

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The new property tax rules, which came into force on May 9, follow substantial growth in property prices in Singapore last year as demand surged amid the pandemic.

Buyers buying houses in Singapore are subject to two types of stamp duty, called Buyer’s Stamp Duty and Buyer’s Supplementary Stamp Duty (ABSD). The former must be paid on all real estate purchases. The second applies only to residential property purchases and the total amount varies depending on the profile of the buyer, Ong said. Previously, when property was held in an inter vivos trust with no identifiable beneficial owner, ABSD was not charged. With the new lax rules, this is no longer the case. “A 35% ABSD charge will apply to any transfer of residential property into a living trust, which is a trust created by a person during their lifetime. It is payable in advance,” he said.

Buyers can claim back this additional stamp duty within six months of signing the trust deed by meeting three conditions, he said. The first is that all beneficial owners of residential property are identifiable individuals. The second, that the beneficial ownership of the residential property vested in all such beneficial owners upon the transfer of the property into the trust. The third is that “beneficial ownership cannot be altered or revoked, or be subject to any subsequent condition, under the terms of the trust”. The amount reimbursed will depend on the tax profile of the beneficial owner with the highest applicable ABSD rate.

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“Given the increase in ABSD, it is now crucial to ensure that the trust document is drafted in such a way as to meet the repayment terms of ABSD,” Mr Ong said. Potential ways to avoid additional ABSD costs include: buyers holding residential property in fixed trusts for their children, holding residential property in their personal name and transferring into a testamentary trust on their death, or by donating directly to a beneficiary via their will, he said.

Property owners in Singapore are also subject to an annual property tax, which is calculated based on the estimated annual gross rental income if the property were to be rented out. The percentages of this tax should also increase. “Currently, property tax is levied at graduated rates of up to 16% for owner-occupied properties and up to 20% for non-owner-occupied properties. By 2024, the graduated rates will increase to 32% for owner-occupied properties and up to 36% for non-owner-occupied properties,” Mr Ong said. “It should be noted that the lower homeowner tax rate will generally not apply to residential property owned by a trust unless the trustee (as the legal owner) resides there.”

For wealthy buyers, this means a substantial increase in annual property taxes. “Larger or more expensive properties with a higher annual value would be much harder hit by increased property tax rates. For example, a large owner-occupied property with an annual value of S$1 million (US$724,000) would pay $148,580 in property tax today, but that would double to S$299,980 by now. 2024,” he said.

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