Recently, there is news that IRAS is probing into cases where some property buyers transferred 1% of their property shortly after buying and this may be tax evasion. How could it worked so we find out…
Disclaimer: I’m trying to figure out why it may have been a loophole. The narration is from my best assumption on how it works and may contain inaccuracies. Consult a proper lawyer with regards to home ownership structure.
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0:00 Introduction
0:38 Puppet and Puppet master
2:10 Decoupling
3:50 Are they stupid?
5:16 Previous ABSD loopholes
6:10 My hypothesis
7:57 What will happen
#property #sgproperty #iras #absd #investment #propertyinvestment
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In recent years, the Singapore government has implemented various measures to cool down the local property market, including the Additional Buyer’s Stamp Duty (ABSD) which imposes additional taxes on certain categories of property purchases. However, some property buyers have been able to exploit a loophole in the ABSD policy, enabling them to avoid paying the additional taxes legally.
The ABSD loophole works by allowing buyers who have already paid ABSD for a previous property acquisition to claim a refund for their subsequent purchase, as long as they sell the original property within six months from the date of the second purchase. This means that a buyer who has already paid ABSD for a property can buy another property without having to pay the extra taxes, provided that they sell their previous property within the stipulated time frame.
At first glance, this loophole may appear unfair, and it’s easy to assume that those who utilise it are trying to cheat the system or are simply ignorant of the rules. However, upon closer inspection, it is clear that these property buyers are not stupid, and in fact, they are simply taking advantage of a legal opportunity to save money.
One reason for this is that the ABSD is a significant financial burden, particularly for those who are buying more expensive properties. The rates for ABSD start at 12% of the purchase price for foreigners, and 7% for Singaporeans purchasing their second property. For those buying their third or subsequent property, ABSD rates can go as high as 15% of the purchase price. The ability to claim a refund for ABSD paid on a previous property can result in substantial savings, especially for those who frequently buy and sell properties.
Moreover, the ABSD loophole is not a new concept, and many savvy property buyers and investors have been using it for several years. It’s also worth noting that using the loophole is not as simple as it seems, as it requires careful planning and execution to ensure that the sale of the first property is completed within the given timeframe. This implies that those who use the ABSD loophole should have a good understanding of the property market and should be able to make informed decisions about when to buy and sell properties.
In conclusion, the ABSD loophole is a legitimate legal avenue for property buyers to avoid paying additional taxes. Those who use it are not stupid, but rather, they are savvy investors who understand how the property market works and how to maximise their gains. While it may seem like a loophole that should be closed, one could argue that it’s better to encourage property buyers to keep investing in the local market and to keep the economy moving, particularly during uncertain times.
Disclaimer: I'm trying to figure out why it may have been a loophole. The narration is from my best assumption on how it works and may contain inaccuracies. Consult a proper lawyer with regards to home ownership structure.
Article source: https://www.singaporelawwatch.sg/Headlines/iras-probes-home-buyers-who-used-99-to-1-loophole-to-avoid-paying-absd
I’ve a fren who claimed that she decoupled her first property with her husband and her husband in turns bought another property co-own under this 99-1 structure with their son. I doubt she actually decoupled d first property with her husband. If she had decoupled, and after decoupling, why is it that her husband only own 1% of d new property and d son owns 99%. Clearly, her husband is d one with d financial capacity. Make no sense.
aren't loopholes supposedly legal? or is it the intention to evade tax that is the crime?
Hi Josh, in this 1 to 99 arrangement, when the property is sold for a profit, will the master owner, who owns 1% of the property but paid 100% of the mortgage, be entitled to 100% of the profit? Or he/she will get 1% while puppet owner receives 99%?
It's clearly designed to avoid ABSD, the govt should do the right thing and make all these people pay absd and fine them
Tax Evasion and Tax Avoidance are 2 different terms. Do use it carefully. 🙂
What do you think about this common scenario ? Buying HDB with 1 as owner and other as essential occupier with the intention of the 'essential occupier' purchasing a private property after 5 year MOP and avoiding ABSD.
I dont understand the use of probe. To me it seems that a potential crime was comitted. I think they should do an internal revieww and be held responsible for losses due to these loopholes
Hi Josh, I own a property and am blessed to have inherited another property from my late parents. For inherited property there is no payment of ABSD. In future if I were to buy another property, will this new property be considered as my second or third property as the amount of ABSD payable is hugely different. Thank you.
Likely also agents are 'advising' them..
few scenarios:
a) a SG citizen and foreigners/EP spouse: if they buy together, absd is 30% on the entire purchase. Loophole: the SG spouse buy first, then sell 1% to the foreign spouse, 30% of the absd is paid on 1% of the purchase price.
b) a couple in which one of the spouse already owns a property
c) rich speculator who owns property, can ask his family members who own no property to buy first, then resell 1% to him. ABSD on that 1% only, then when the unit TOP, they flip the unit
Also, I hope the government will close that "loophole" allowing HDB owners to decouple and buy a private condo
the best property strategy is buy the 1st HDB flat using tenancy in common structure.