Planning on purchasing residential property in Singapore in your child's or children's name? Our Business & Family Solutions team at Lighthouse Canton analyses how additional property in Singapore can be bought under your child or children's name(s) and the Additional Buyer's Stamp Duty (ABSD) implications on your second or third properties.
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Singapore's property market is one of the most vibrant property markets in the world. Even with cooling measures introduced[1], Singapore remains attractive to families across the globe hoping to have a pied-a-terre and possibly move to Singapore.[2]
For an average Singaporean, owning a home in Singapore is a fundamental objective in life, which they set out to achieve from a very young age. Larger families increasingly look at moving to larger spaces while still holding on to their existing property and earning passive rental income from it.
Should they decide to buy their 2nd or 3rd properties for their expanding family or even buying a commercial one as an investment, there is Additional Buyer's Stamp Duty (ABSD) to contend with.
It is in this article that we examine how 2nd and 3rd property purchases have been done to optimize on ABSD by these families.
In order to optimize ABSD, parents buying properties as an investment for securing their children, may buy these properties in the names of the children instead of themselves, even if such children are minors. The property may be bought and held in a Trust that has been created by the parent for such child.
An existing family Trust cannot be used for this purpose, as the child themselves must be the sole Beneficiary of the Trust when the property is settled.
The parent (i) creates the Trust and (ii) pays for the property. The property is then acquired by the Trust for the sole benefit of such child/ children. The property is subject to the stamp duty as if it is the 1st property acquired by a child and the stamp duty stands eliminated/ reduced to that of a 1st property purchase.
The Inland Revenue Authority of Singapore (IRAS) is extremely strict on the use of these Trusts to acquire property and has laid down strict conditions that need to be followed
- The Trust should be created with only the child/ children as Beneficiaries.
- The property should be bought fully in cash. There can be no mortgage or any financing on the property. The parent cannot loan the money to the child's Trust, which has to be paid back.
- It must be an irrevocable gift i.e. the property cannot be taken away from the child by the parents at any point going forward.
- All benefits from the property, including any rental income, should be allocated to the child in a designated account, and cannot be used by the parent.
- The above also applies should the property be sold i.e. the proceeds should be held for the benefit of such child in a designated account and cannot be appropriated by the parent.
- The parents can stay in this property so long as the child is also living with them in it.
- Whilst the parent can decide at what age the Trust will distribute the property to the child, the child does have a right to acquire this property from the Trust at the age of majority of 21 years old.
If one or some of the abovementioned conditions have not been fulfilled, the Trust can be looked through and the property can be considered to have been bought by the parents for their own interest, IRAS can then call upon the parent to pay the applicable ABSD as well levy a penalty at their discretion.
[EDIT: In February 2022, the Singapore Government issued an update to ABSD and property taxes, please see here for the latest Insights addressing the budget update.]
[1] Additional Buyer's Stamp Duty for Singapore citizens (ABSD): 12% for second property; 15% for the third property. ABSD for foreigners is 20%.
[2] Under the respective Free Trade Agreements, Nationals or Permanent Residents of the following countries will be accorded the same Stamp Duty treatment as Singapore Citizens: Nationals and Permanent Residents of Iceland, Liechtenstein, Norway or Switzerland and Nationals of the United States of America. https://www.iras.gov.sg/irashome/Other-Taxes/Stamp-Duty-for-Property/Claiming-Refunds-Remissions-Reliefs/Remissions/Foreigners-Eligible-for-ABSD-Remission-under-Free-Trade-Agreements--FTAs-/
DISCLAIMER This article, provided as a general commentary, is for informational purposes only and is not to be construed as an offer to sell or solicit an offer to buy any financial instruments in any jurisdiction. This article does not constitute, and is not intended to provide, any form of tax, legal and/or accounting advice. You should consult your financial advisors prior to taking any decision(s). This article is based on information from sources which are reliable but has not been independently verified by Lighthouse Canton Pte. Ltd. and its subsidiaries ("LC"). LC has taken reasonable steps to verify the contents of this article and accepts no liability for any loss arising from the use of any information contained herein.Information contained herein are those of the author(s) and does not represent the views held by other parties. LC is also under no obligation to update you on any changes made to this article.Lighthouse Canton Pte. Ltd. and its subsidiary, Lighthouse Canton Capital (DIFC) Pte. Ltd. are regulated by Monetary Authority of Singapore ("MAS") and Dubai Financial Services Authority ("DFSA") respectively. MAS and DFSA have no responsibility for reviewing, verifying and approving the contents of this article and/or other associated articles. The contents of this article may not be reproduced or referenced, either in part or in full, without prior written permission from LC. Please contact us should you wish to republish or reference this article.
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