Editor’s Note: This post was originally published in May 2022 and has been updated to reflect the changes made to the ABSD rates as announced by the government on 26 April 2023. In light of the 99-1 Tax Loophole, this guide doesn’t promote the practice of tax evasion but explains the process of legal decoupling.
The ABSD for Singapore Citizens buying a second property is 20% of the purchase price (up from the previous 17%), or the current market value of the property, whichever is higher. It is 30% for Singapore Permanent Residents and 60% for foreigners. You can go here for the breakdown of the new ABSD rates.
However, many married couples in Singapore have found a way to buy a second home without having to pay the ABSD – in a process called decoupling.
Table of Contents:
- What is decoupling?
- Transfer by way of sale (part purchase)
- Scenario A: Joint ownership (50-50) by John and Amanda
- Scenario B: Tenancy-in-common (99-1) ownership
- Transfer as a gift
What is decoupling?
Joint homeowners can “decouple” when one co-owner transfers his/her share to the other, relinquishing his/her ownership completely. Now, this owner will be treated as a first-timer, as if he/she has not bought or owned a property before. Meaning, he/she can buy a second property without incurring any ABSD.
Take this for example: If you decide to buy a $1 million second property for investment without decoupling, you will have to pay an ABSD of at least $300,000 (assuming you’re a Singapore Citizen buying a second property). But by decoupling, you can save the amount and use it for other home-related purchases such as home renovation and/or furnishings.
|Property Tax||What you pay if you don’t decouple||What you pay if you decouple|
|Additional Buyer’s Stamp Duty (ABSD)||$200,000||N/A|
|Buyer Stamp Duty (BSD)||$24,600||$24,600|
Please note that the calculation only illustrates the cost of the ABSD and does not include other costs, such as outstanding home loans and the Central Provident Fund (CPF) monies to be returned. We have added a more detailed decoupling scenario at the end of this article.
Sounds good, right? Unfortunately, it is not suitable for everyone.
Unfortunate news for HDB owners thinking about decoupling
HDB flat owners have not been allowed to transfer their ownership to a family member since 2016.
In most scenarios, decoupling will only be possible for private properties.
How can private homeowners decouple their property?
There are two ways for private homeowners to practice decoupling: by way of sale (part purchase) and through a transfer as a gift.
Transfer by way of sale (part purchase)
This process involves one party legally buying all the remaining shares of the property from his/her spouse. All the terms of the contract would need to be spelt out in the sale and purchase (S&P) agreement and is usually drafted by a lawyer or conveyancer.
To complete the transaction, the buyer would have to pay the seller for his/her rights to the property, as stated in the S&P agreement, and the BSD to the Inland Revenue Authority of Singapore.
Buyer Stamp Duty (BSD) with effect from (wef) 15 February 2023
The BSD rates for both residential and non-residential properties will be raised, as announced during Budget 2023, with effect from 15 February 2023. There is a transitional BSD remission for properties acquired on or after 15 Feb 2023 such that the former BSD rates will apply, subject to the remission conditions being met.
The changes in BSD rates only apply to homes with a portion of value in excess of $1.5 million and up to $3 million, which will now be taxed at 5 per cent. That’s a 1% hike from the current rate. Any homes with a value in excess of $3 million will be taxed at 6%.
|Payment Schedule||BSD Rate|
|Amount exceeding $3,000,000||6%||5%|
Seller Stamp Duty (SSD) wef. 11 Mar 2017
|Holding Period||Seller Stamp Duty|
|Up to 1 year||12%|
|More than 1 year and up to 2 years||8%|
|More than 2 years and up to 3 years||4%|
|More than 3 years||No SSD payable|
The lawyer would then use these proceeds to pay off the seller’s existing mortgages, CPF used, and SSD (if any) before transferring the ownership to the buyer. Should you require any assistance on this, WhatsApp us here and our Relationship Managers and Super Agents will advise and assist you accordingly.
Scenario A: Joint ownership (50-50) by John and Amanda
In this scenario, John and Amanda (both Singaporeans) are joint owners with equal shares to a condominium unit for more than four years. This is also known as a joint-tenancy, meaning both John and Amanda have a 50% share of the property.
In the event that one co-owner passes away, the other co-owner will inherit the entire property under the right of survivorship. This is regardless if there is a will left by the deceased.
Now imagine John earns a high and stable income. He can get a bigger loan to buy a landed property for his family to move into, but the ABSD would be a substantial cost.
How John and Amada can decouple the condo:
Current condo valuation: $1 million
Existing home loan balance: $500,000 (split equally between John and Amanda since each of them owns 50% of the property)
50-50% part share selling price (Since both John and Amanda owns 50% shares each in the property): $500,000 ($1 million divided by 2)
|John sells 50% shares to Amanda||Amanda buys 50% shares from John|
|Sale price: $500,000||Purchase price: $500,000|
|Pay off original home loan: $250,000||How Amanda pays: |
(a) 25% (Cash + CPF): 125,000 (min. $25,000 in cash)
|Return to John’s CPF: $150,000 (including accrued interest)||Other expenses for Amanda (Cash/CPF):|
(b) BSD (Purchase price*3% (-$5,400): $9,600
(c) Estimated legal fees (2 firms): $5,500
|John’s cash proceeds: $100,000||(a + b + c) Total cost for Amanda: $140,100|
|–||(d) 75% New home loan: $375,000 |
(e) Amanda’s existing home loan with the bank: $250,000
(d + e) Amanda’s new loan amount after the decoupling process: $625,000
After decoupling, John will receive $100,000 in cash proceeds, which he may use for his new home purchase that’s ABSD-free.
However, Amanda will have an increased loan amount of $625,000. This is a heavy financial burden for just a single income to support, and is not recommended for everyone.
So we highly encourage you to speak to our Super Agents before decoupling. They can assist you with the correct financial planning, with the help of our mortgage partners, so you can meet your property goals without overwhelming your finances.
However, not all properties are held in joint-tenancy or equal shares like the scenario above.
Scenario B: Tenancy-in-common (99-1) ownership
In this new scenario, John and Amanda are tenants-in-common. This means, instead of a 50-50% split ownership between John and Amanda, John holds 1% share of the property, and Amanda the remaining 99%.
But here’s the thing: This only works if, at the time of purchase, it was set up to be a 99-1 split ownership.
|John sells 1% of his share to Amanda||Amanda purchases 1% of John’s share|
|Sale price (1% of $1m): $10,000||Purchase price (1% of $1m): $10,000|
|Pay off original home loan: $5,000||How Amanda pays: 25% (Cash + CPF): $2,500 (min. $500 in cash)|
|Return to John’s CPF: $0||Other expenses for Amanda (payable Cash/CPF):|
Estimated legal fees (2 firms): $5,500
|John’s cash sales proceeds: $5,000||Total cost for Amanda: $8,100|
|–||75% New home loan: $7,500 Amanda’s existing home loan with the bank ($500,000 x 99%): $495,000 |
Amanda’s new loan amount after the decoupling process: $502,500
Now John may proceed to buy a new property without incurring any ABSD because he has effectively sold all the shares of his property to Amanda.
And under the 99-1 rule, the BSD fee payable is only 1% at $100, which is much lower than the $9,600 buyer’s stamp duty in the first scenario. Only the legal fees will stay the same.
The risk in this scenario will arise in the event of a divorce, where one party will own 99% of the house. You may battle this out in court, but it may take time and result in higher legal costs.
2. Transfer as a gift
You can transfer your share of a property as a gift without receiving any payment, but it is only possible if there are no outstanding mortgage or CPF monies tied to the home purchase.
New laws from 9 May, 2022 with regards to residential properties transferred into a living trust:
Additional Buyer’s Stamp Duty (ABSD) of 35% will now apply on any transfer of residential property into a living trust. ABSD will be payable even if there is no identifiable beneficial owner at the time the residential property is transferred into a trust.
So this new change closes a loophole. This ABSD (Trust) is to be paid upfront when the transfer is made.
Can you afford to decouple?
Before decoupling your property with your spouse, speak to a certified property agent and check all the costs and risks involved. Some couples may think it’s better (and quicker) to pay the ABSD and move on, but others may be more hesitant. It is a huge financial responsibility, after all. Wherever you fall in this spectrum, it is always prudent to get advice from a professional. Consult us here or drop us a message on WhatsApp. You can also send an enquiry via our Live Chat at the bottom, right-hand corner of the screen.
Frequently asked questions about decoupling
1) What happens if I do not have sufficient CPF for the downpayment, stamp duty or legal fee?
All payable costs/fees would be paid in cash if you have insufficient CPF savings.
2) Can I get a mortgage loan for my second property?
Please remember to consider the Total Debt Servicing Ratio (TDSR), which sets a monthly repayment threshold for property loans at a maximum of 60% of the borrower’s monthly income.
The eligible loan amount may vary between partners as it is dependent on income, employment, credit standing, etc. Check with your bank mortgage officer on your eligibility.
3) As the seller, can I keep the sales proceeds as cash after decoupling?
All CPF Ordinary Account funds and accrued interest used towards the payment of the property must first be returned to the CPF Board. The remaining surplus would be returned to the owner as cash.