May 29, 2024 10:45 am

WAYS TO AVOID PAYING SINGAPORE ABSD?

1. Obtain an Executive Condo (EC) upgrade

You must pay the ABSD in full up front if you want to improve your house but don’t want to own two properties at the same time. That bothers me!

Read More: How to avoid ABSD

On the other hand, if you sell your old apartment within six months of buying the new one, you can apply for ABSD remission. It seems that you still have to pay the substantial 20% tax (or 25% for Permanent Residents) in cash or from your CPF account (yes, you may use your CPF funds to pay stamp duties similar to the ABSD).

There is a benefit to this, though: this specific restriction only applies to private condominiums. Upon buying a new EC, ABSD is not required up front. Furthermore, EC purchasers get upfront ABSD remission. To be eligible for this exemption, though, you must sell your prior apartment within six months after receiving the keys to your EC. At least you are spared the expensive upfront ABSD cost.

Note: You can utilize your CPF savings to pay ABSD if you’re buying a freshly constructed property. The down payment for resale homes needs to be made through your lawyer in cash. You can then seek to utilize your CPF for ABSD payments after you are the property’s legal owner.

If I Purchase A Private Property, Do I Still Have To Pay ABSD?

You will be required to pay ABSD in full when you purchase a new private house or upgrade from a HDB unit. Within 14 days after you sign the Sales and Purchase (S&P) Agreement, you can make that payment in cash or with funds from your CPF account.

There is a method to get some relief, though. You may be able to receive a portion of the money back if you file for an ABSD remission and sell your first home within six months of purchasing it.

2. Selling your first residence before making a commitment to a secondary residence

A popular strategy is to arrange the sale of your first home before agreeing to the Option to Purchase (OTP) for your second property if you’ve got your eye on it and want to avoid the ABSD.

The concept is simple: you sell your current home and use the profits of the sale to buy another property in your name, and your spouse buys a smaller property at the same time.

Suppose your four-room HDB apartment is sold for $500,000 by you and your partner. Your spouse can put $200,000 toward a smaller apartment in their name and you can use the $300,000 from the sale as a down payment for a $1 million condo in your name. Since your former property has been sold, neither of you will be subject to ABSD at the time of acquisition because you both don’t own any other property.

If you can rent a place or locate temporary housing, selling your current property before buying a new one will guarantee that you are not subject to ABSD when you move into your new residence.

It is important to keep in mind, though, that in order for this plan to work, both you and your spouse must be eligible for the corresponding mortgages. This strategy provides a workable means of navigating ABSD regulations as you work toward your real estate investing objectives.

3. According to Free Trade Agreements (FTAs), a national or permanent resident

You may be exempt from or qualify for remission of ABSD under FTAs based on your nationality. When purchasing residential properties in Singapore, nationals or permanent residents of the following nations receive the same ABSD rates as Singaporeans:

Iceland

Liechtenstein

Norway

Switzerland as well as

America the United States

The Singapore-European Free Trade Association (ESFTA) agreement’s “national treatment” requirement gives birth to this privilege.

For their first property, citizens or permanent residents of certain nations are free from ABSD; nevertheless, they must pay ABSD for their second and future acquisitions of real estate.

According to the individual FTAs, citizens and permanent residents of these nations are qualified for ABSD remission. Their conveyancing attorney can use the e-stamping portal on the IRAS website to simplify the remission.

The Effect Of Singapore’s Raised ABSD On Foreign Purchasers

10% of all real estate transactions in Singapore might be affected by the 10% increase in ABSD rates in 2022. Foreign purchasers, who made approximately 5% of all real estate deals last year, will be the ones most affected. The characteristics of the Singaporean real estate market will be altered as a result of the increase in ABSD rates, which would deter many prospective international investors and purchasers.

As was previously indicated, the government raised the ABSD by 100%, from 30% to 60%, for foreigners buying private property.

There might be a significant drop in the amount of foreign purchasers purchasing real estate (they are mostly active in the luxury and Core Central regions). Even the wealthiest investors would be hesitant to purchase a $2 million house if they had to pay $1.2 million in ABSD.

4. Purchase the first house in the name of one spouse

Purchasing the home in the name of one spouse rather than the customary joint ownership is perhaps one of the simplest methods to get around ABSD.

When considering the acquisition of a second house, this technique can help you get around the ABSD if you and your spouse have the financial wherewithal to invest in a private property and one of you can easily handle the mortgage alone.

Think about the following situation: Buy your first house in the name of just one spouse. By taking this action, the other spouse is released from ABSD responsibilities and can become a first-time buyer of another home without having to pay additional stamp duty.

If you fulfill certain requirements, this method provides a hassle-free way to navigate ABSD when buying a second home. Rather than becoming a co-applicant or co-owner, you might identify yourself or your spouse as an important occupier.

Planning ahead is necessary for this decision, usually in the HDB unit application procedure. After being recognized as an important occupier, a person can become a first-time homeowner and acquire a private property without having to pay an annual rental fee (ABSD) following the five-year Minimum Occupation Period (MOP).

Furthermore, you will be qualified for a greater loan-to-value (LTV) ceiling of 75% as opposed to second-timers’ 55% restriction. It’s important to keep in mind, too, that essential occupiers are not eligible to use their CPF to pay for the down payment or ongoing monthly installments for the first apartment. Ascertain if the principal applicant have sufficient CPF savings to cover the down payment.

Finally, it’s critical to think about any possible legal ramifications. If the property is entirely registered in the name of the other spouse, then in the case of a disagreement or divorce, the essential occupier will not have legal ownership of the property despite having made considerable financial contributions. It emphasizes how using this tactic requires thorough planning and awareness of the possible outcomes.

5. Examine purchasing commercial and industrial real estate.

The ABSD, which normally applies to residential homes, can be avoided by investing in commercial real estate in Singapore. Here are some reasons to think about this option:

i. ABSD Exemption: ABSD charges do not apply to commercial premises. They are a desirable alternative for investors wishing to increase their real estate holdings without having to pay more stamp duty because of this exemption.

ii. Higher Rental Yields: Compared to residential properties, which often give rental returns of 2% to 3%, commercial properties generally produce higher rental returns, averaging about 5%. Investing in commercial real estate can be financially lucrative due to the possibility of increasing revenue.

Nonetheless, it’s critical to understand the special qualities and dangers connected to commercial properties:

Costlier: Compared to residential homes, commercial properties often come with a greater price tag, requiring larger cash outlays.

Cash Payments: Unlike residential homes where CPF can be used, the down payment for commercial properties must be provided in full cash.

GST Charges: The Goods and Services Tax (GST), which is now 8%, is applicable to commercial premises. The GST fee must be paid in cash.

Investments in commercial real estate may be very profitable, but they also need extensive study and a comprehensive grasp of the industry, as it is very different from residential real estate.

The risks and rewards associated with different market segments—such as shophouses, retail spaces, offices, and industrial sites—mean that you must adjust your investing approach to fit your goals and financial situation.

6. Get your kids a property through a trust.

One other workable way to get around the ABSD is to purchase the land and put it in a trust for your kids.

When you purchase real estate for your kids through a trust, the property is legally theirs. That relieves you of the ABSD payment. To put this plan into action, a conveyancing attorney will be necessary.

When the property was bought in your children’s names, there used to be a 35% ABSD penalty (as long as they didn’t own any other properties).

Nevertheless, regardless of the existence of a named beneficiary, a 65% ABSD is due up front for every transfer of a residential property to a living trust as of April 27, 2023. Within six months following the execution of the trust agreement, an ABSD return may be requested.

Requirements For Eligibility For ABSD Refund:

The residential property’s beneficial owners must all be distinct people; you cannot transfer ownership to an unborn child.

The property must be owned by the beneficiary owner at the time of application, not thereafter.

The trust deed is a true gift to the recipient since it cannot be altered, canceled, or subject to conditions.

Critical Points to Remember:

Since trust properties are not eligible for bank loans, purchasing real estate under a trust is best left to those with sizeable financial reserves.

Your child is the rightful owner of the property, and they also own the rental revenue and sales profits.

Carefully draft the trust document to comply with ABSD reimbursement requirements; mistakes may incur monetary losses.

By creating a property trust for your child under the age of 21, you may essentially purchase a home in their name without having to worry about ABSD.

7. Purchasing a two-key unit and leasing the accessory unit

With dual-key units, you may own a property with two independent units side by side for the cost of a single unit, making them a unique offering. Because this agreement just involves one property, it offers a clear advantage in terms of ABSD, assisting you in avoiding any that may arise from purchasing a second home.

The main and the sub-unit of a dual-key unit each have their own living areas but share a shared lobby. Each section of the unit may contain separate living spaces, including kitchens and toilets, depending on how it is laid up. This adaptability attracts to a wide range of investors and purchasers. It preserves the homeowners’ privacy while enabling them to rent out the subunit.

It is crucial to remember that dual-key apartments’ exclusivity frequently translates into a greater cost per square foot. Actually, their price may be up to 25% more than that of traditional units. For individuals looking for both privacy and rental returns, dual-key flats might be an appealing investment choice due to the flexibility and possibility of rental income, even with the additional expense.

8. Decoupling (if the expense is within the ABSD)

Decoupling is one of the most often used strategies to avoid the ABSD. When buying a property together, think about decoupling by giving one spouse’s part to the other. It permits the spouse who did not own the first home alone to purchase a second property in their own name without having to pay the ABSD. Decoupling does come with prices and concerns, though.

Property shares cannot be freely transferred between spouses. In the event that you and your spouse jointly own a $1 million property and your spouse transfers to you her 50% interest in the property, you would still be required to purchase $500,000 from them and pay the BSD.