Decoupling is a term usually used by registered owners who wish to remove their name from the title of a property to “free” the owner of a property count for the purposes of calculating Additional Buyer’s Stamp Duty (ABSD). In legal language, this is more accurately termed as a part sale and purchase of shares in the property. 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.
This process of decoupling essentially frees the outgoing owner to purchase another residential property without paying ABSD or paying a lower rate of ABSD. While this is commonly practiced in recent years, there are several issues that the owners should take note of before undertaking this exercise.
Financing, Private Properties VS. HDB Flats
For private properties, decoupling is subject to MAS’ and banks’ financing rules and requirements, including the ability of the remaining owner to refund the outgoing owner’s CPF monies and finance the mortgage solely. If there is a CPF charge or outstanding mortgage loan, the purchaser of the part share may need to take up a fresh loan or restructure the existing loan to finance the part purchase.
In contrast, HDB only allows ownership transfer under six scenarios on top of MAS’ and banks’ financing rules: –
– Medial Reasons
– Death of an Owner
– Financial Hardship
– Renunciation of Singapore Citizenship
Determining The Purchase Price Of The Part Share
In the event the purchasing owner would be taking up a fresh loan or restructuring the existing loan, a lending bank will usually arrange for a valuation report to determine the market value of the property. This way, it will then be possible to peg the purchase price of the part share to the market value at the time of the contract.
However, if a valuation report is absent, proprietors run the risk of entering into a transaction undervalued or insufficiently stamped, which may result in a penalty of up to four times the imposed amount by IRAS.
Transfer Of Part Share By Way Of Gift Or For Normal Consideration
Apart from the part sale and purchase method, transferring a share in a property by way of gift or normal consideration also incurs stamp duty charges. The charges are based on the market value of the share in property transferred, and insufficiently paid stamp duty may lead to penalties.
BSD and possibly ABSD will be applicable for the purchase or transferring of the part share, depending on the profile of the purchaser. Additionally, the vendor or transferor may be liable for Seller’s Stamp Duty (SSD) depending on the date of acquisition of the property. If the property was purchased on or after 11 March 2017 and sold within three years from the date of acquisition, SSD on the sale price will be payable.
Remission – Transfer Of Interest In Property Remission
IRAS recognizes that the sale or transfer of the partial interest in the property is to the transferee, to which he or she already owns an interest in the same property. Therefore, partial ABSD may be remitted on the transferee if certain conditions are met. The conditions are:
1) the instrument is for the sale or transfer of partial interest in a single residential property to the transferee(s),
2) as at the date of the instrument, the transferee(s) is a relevant individual i.e. a Singapore Citizen who owns interests in 2 residential properties or Singapore Permanent Resident who owns interests in 1 residential property, and
3) one of the 2 residential properties or the 1 residential property referred to in (2) above (whichever applicable) is the same property referred to in (1).
Risks of Decoupling
Although decoupling can lead to significant cost savings, it may not always be the most suitable choice. This is particularly true when the first property is more expensive than the second, as the costs of decoupling may exceed the potential savings.
Next, if the transferor declares bankruptcy within five years of the transfer date, the portion of the property that was transferred may be seized by creditors.
Lastly, calculating the different amounts of ABSD required for each scenario can be complicated, and errors can be costly. If you are not confident in your ability to perform the calculations accurately, it is recommended that you seek the advice of a professional or specialist. They will be able to provide guidance on the most appropriate course of action.
To learn more about decoupling strategies and capital appreciation strategies for property portfolios, contact our consultants. We customize how we purchase, sell, and choose homes to meet the specific requirements of each client. Goals and financial circumstances vary, and the optimal strategy will differ. Is decoupling still a viable option for you? Connect with us to obtain more information!
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