You might have seen the recent news about the government’s changes to the Additional Buyer’s Stamp Duty (ABSD) regime in Singapore. If, like me, you are equal parts fascinated but also confused about what these changes might mean for you, fear not! This article will summarise everything you need to know about the recent changes, and whether they are something that you should be concerned about.
At a glance, the main change is that any transfers of residential property into a living trust will now be subject to an ABSD of 35%. Thus, in addition to explaining what this change entails, this article will cover the following topics:
- Summary of the ABSD regime in Singapore
- What is a living trust
- What is the ABSD Regime for a Living Trust
- How to apply for a refund of ABSD
Summary of the ABSD regime in Singapore
When you buy a residential property in Singapore, you are liable to pay stamp duties, which are taxes levied by the government on documents relating to immovable property (i.e. real estate). This is because when the residential property changes hands, the transaction must be legally and officially registered, and this registration is evidenced by the document on which stamp duty has been paid.
In Singapore, both the buyer and the seller have to pay stamp duties when a property is transacted. In particular, there are two kinds of stamp duties that the buyer may be liable for:
- Buyer’s Stamp Duty (BSD): A tax that is levied on all purchases of property; and/or
- Additional Buyer’s Stamp Duty (ABSD): An additional tax that is levied on some purchases of property, depending on the fulfilment of certain factors.
The focus of this article will be on the additional stamp duties (ABSD) that are payable by the buyer.
Before the recent changes, a buyer’s ABSD liability for the purchase of any residential property was affected solely by:
- Whether the buyer is an individual or an entity (e.g. unincorporated associations, partners of a partnership);
- The profile of the buyer (i.e. whether the buyer is a Singapore Citizen, Singapore Permanent Resident or foreigner); and
- The number of residential properties owned by the buyer (including residential property beneficially owned).
However, an additional factor now comes into play – whether the residential property is to be held in a living trust.
What is a Living Trust?
To start off, a trust is a legal arrangement between several parties for the transfer of an asset. Such assets can range from real estate to personal property like stocks and bonds. These parties are:
- The person who originally possesses and who wants to transfer the asset, (the “trustor”);
- The person who is supposed to eventually receive the asset upon the death of the trustor (the “beneficiary”); and
- The person who is entrusted with and given the responsibility of managing the asset for the beneficiary (the “trustee”). Management of the asset encompasses duties such as investing the assets, recording the expenses pertaining to the assets etc. If the asset is a residential property, management of the property might involve maintaining the property, administering the renting out of the property, and investment of the rental proceeds etc. The trustor and trustee can be the same person, e.g. if a person executes a declaration of trust to state that he is holding the property on trust for someone else, he would be both the trustor and the trustee.
A trust is regarded as “living” if it is created while the trustor is alive. This differs from a trust that is formed in a will, which would come into effect only after the trustor’s death.
A trust is created by executing a trust deed, which is a written document representing the agreement between the trustor and the trustee for the latter to receive the property and hold it on trust for the beneficiary.
Prior to the transfer of the asset, the trustor has both legal ownership and beneficial ownership over the asset. The legal owner is the registered owner on paper (e.g., the owner is registered under the Land Titles Registry for property), but the beneficial owner is the person who is actually entitled to the benefits of the asset.
However, in the process of creating the trust, these two forms of ownership are split between the two parties:
- The trustee has legal ownership over the asset; and
- The beneficiary has beneficial ownership over the asset.
To illustrate how such a transfer would work, consider this family situation:
A father wishes to transfer ownership of a residential property, upon his death, to his only daughter. One way that he may do so is by transferring the property into a living trust, by deciding on a trustee to manage the property on behalf of his daughter during his lifetime. The common arrangement is for the father to purchase the property, and execute a declaration of trust to state that he is holding the property on trust for his daughter.
As a result, the legal ownership of the property will be vested in the father and beneficial ownership in his daughter. However, upon the father’s death, the legal ownership of the property will be transferred to his daughter, who will have both legal and beneficial ownership over the property.
The ABSD Regime for Living Trusts
When is ABSD payable?
With effect from 9 May 2022, ABSD is payable for any transfers of residential property into a living trust.
This includes the following two situations:
- If the residential property is transferred into a living trust with (an) identifiable beneficial owner(s) at the time of the transfer; and
- If the residential property is transferred into a living trust with no identifiable beneficial owner at the time of the transfer.
A living trust has no identifiable beneficial owner when the beneficiary has not been born at the date of the declaration of the trust, or if the beneficiary needs to fulfil certain conditions before being entitled to the interest in the property. Examples of such conditions include:
- The beneficiary getting married by a certain age;
- The beneficiary graduating from university; or
- The beneficiary turning 21.
In these scenarios, there is said to be no identifiable beneficial owner. This is because at the time the property is transferred into a living trust, the conditions attached to it have not been fulfilled, and so the beneficiary is not yet regarded as identifiable.
With the recent changes, ABSD will now be payable even in such situations. This is to promote a stable and sustainable residential property market, by plugging this gap that previously existed.
What are the current ABSD rates?
The current ABSD rates are as follows:
|Profile of Buyer||ABSD Rates on or after 9 May 2022|
|Singapore Citizens (SC) buying first residential property||Not applicable|
|SC buying second residential property||17%|
|SC buying third and subsequent residential property||25%|
|Singapore Permanent Residents (SPR) buying first residential property||5%|
|SPR buying second residential property||25%|
|SPR buying third and subsequent residential property||30%|
|Foreigners (FR) buying any residential property||30%|
|Entities buying any residential property||35%|
|Housing Developers buying any residential property||35% (plus additional 5% (non-remittable))|
|Trustee buying any residential property||35%|
You may refer to our guide on buyer’s stamp duties in Singapore for a more detailed explanation of the ABSD rates and computation.
When must the ABSD be paid?
The ABSD has to be paid upfront, at the time when the residential property is transferred into the living trust. and
Do note that the ABSD is to be paid by the buyer of the property – who would also commonly be the trustee of the property.
Applying for a Refund of ABSD
It is possible for a trustee to apply for a refund of ABSD paid when a residential property is transferred into a living trust, if certain conditions are met. In sum, the main criterion is whether the residential property is held on trust for identifiable individual beneficiaries only, and if so, trustees may get a refund of part or even all of the ABSD of 35% paid.
What conditions must be met in order to apply for a refund?
A trustee may apply to IRAS for a refund of the ABSD paid if the following conditions are met:
- All beneficial owners of the residential property are identifiable;
- At the time of the transfer of the residential property into the trust, the beneficial ownership of the residential property has been given to the beneficial owners; and
- The beneficial ownership cannot be varied or revoked, or be subject to any subsequent conditions under the terms of the trust. Examples of subsequent conditions contained in the terms of the trust could be a condition that the beneficial owner never sells the property, or a condition that the beneficial owner never transfers the property to his/her spouse.
How is the refund payable calculated?
The exact amount refunded will be calculated by taking the difference between the ABSD of 35% paid and the ABSD payable. This will be based on the highest profile of the beneficial owners of the residential property in the transaction.
For instance, a father might want to transfer residential property into a living trust for the benefit of his daughter. The daughter is a Singapore Citizen, with one residential property in her own name prior to the transfer. With reference to the table above, the daughter would come under the category of “Singapore Citizen buying second residential property”, and the applicable ABSD rate would be 17%. Thus, the amount refunded will be 18% (35% – 17%), or a partial refund of the ABSD paid.
However, if the daughter is a Singapore Citizen and with no residential property in her own name prior to the transfer, the daughter would not be liable to pay any ABSD. In this scenario, the amount refunded will be 35%, the equivalent of the whole of the ABSD paid.
When must an application for a refund be made?
The application for a refund of ABSD must be made within 6 months from the date of the transfer. It can be made via the e-Stamping Portal using the trustee’s SingPass.
Applications will be processed within 2 months from when the trustee submits all of the required information. Once approved, the refund will be made within a month. More information on how to apply for the refund can be found here.
If you are intending to transfer your residential property into a living trust, you should ensure that you are aware of the various changes to the ABSD regime for living trusts.
You should consult a lawyer specialising in estate and trust planning matters for further assistance or clarification. A lawyer can help you with preparing the trust deed and advise you on the compliance requirements involved in the transfer of your property, including payment of ABSD under the new regime.
Your lawyer can also advise you on whether you qualify for an ABSD refund, and can assist you with preparing the necessary documents for your application.