Decoupling Property in Singapore: Should You Do It in 2023?

Let’s cut to the chase: you and your spouse are thinking of buying another property, but you don’t want to pay the big Additional Buyer’s Stamp Duty (ABSD) for owning multiple properties. Especially with the announcement of the latest April 2023 property cooling measures, you’re keen to find a ‘loophole’. So you Google search if there are any workarounds… and learn about decoupling property in Singapore.

Property decoupling was previously thought of as some kind of ‘holy grail’ solution that enabled couples to buy ‘ABSD-free’ investment properties. However, the Inland Revenue Authority of Singapore (IRAS) recently announced that it would investigate homeownership arrangements split in a 99-to-1 ratio. If this arrangement is deemed “contrived or artificial”, couples could find themselves being slapped with a bill not only for unpaid stamp duty but a 50% surcharge on the additional duty payable too. Ouch!

That said, what is decoupling property in Singapore? Why is IRAS investigating cases of property decoupling in a 99-to-1 ratio? Is decoupling illegal? Let’s find out more!

Singaporeans have something of an obsession when it comes to buying properties as investments. However, buying a second property – whether for investment or as a home – comes with a hefty property tax (i.e. ABSD).

Singapore Citizens (SC) buying a second or subsequent residential property are liable to pay ABSD. In order to avoid having to pay ABSD on such a residential property purchase, an SC would need to ensure there are no other residential properties in their name at the time of purchase.

To work around that, co-owners – usually married Singaporean couples – decouple their first property by transferring their share to the other co-owner. This makes one person the sole homeowner of the existing home, freeing up the other person to purchase another property without incurring ABSD.

In order to practise decoupling, buyers often purchase the property as tenants-in-common with a 99-to-1 shareholding structure. In other words, one person will get a 99% share of the property and the other 1%.

The owner holding the 1% share then gives up their share to the owner with the 99% share. Having given up their ownership of the property, the former is now able to buy another property without incurring ABSD.

But why go to the trouble of decoupling, you might ask? Why not just buy the property in one spouse’s name from the get-go? There is a good reason for buying a property in two names: financing.

Banks are obligated to ensure that any amounts they lend buyers do not exceed the Total Debt Servicing Ratio (TDSR). TDSR limits a borrower’s monthly total monthly debt repayments – including home loans and all other debt such as student loans, credit card bills, etc. – to a maximum of 55% of the borrower’s gross monthly income. Buying a home as a couple instead of as an individual means the combined gross monthly income of both spouses will be used to calculate the TDSR, enabling them to borrow more.

TLDR, this 99-to-1 scheme allows couples to borrow more money from banks, and buy ‘ABSD-free’ investment properties.

That said, is decoupling illegal? Answer: no, but tax evasion is.

Historically, the government has acted as a market moderator, stepping in to moderate market forces: the 15-month wait-out period for private property ‘downgraders’ announced during the September 2022 property cooling measures can be interpreted as an intervention against private property owners who have been snatching up million-dollar HDB flats.

Similarly, the BSD increase of up to 6% for residential properties announced during the Budget 2023 statement can be interpreted as an intervention for buyers of luxury private properties (e.g. condos that cost upwards of $5 million) amid record-high interest rates and private property prices.

The government has also previously taken action to close ABSD ‘loopholes’: in May 2022, the Ministry of Finance (MOF) announced a 35% ABSD for property owners who transfer shares of their properties to a living trust (e.g. their children who are yet to be deemed ‘identifiable individuals’). In the latest round of April 2023 property cooling measures, a 65% ABSD rate for trustees was implemented. This can be seen as an intervention against investors who wanted to ‘avoid’ ABSD through the transfer of ownership of their properties to their young children.

As mentioned, IRAS is currently investigating 99-to-1 arrangements. They are urging people who have entered a 99-to-1 arrangement to avoid ABSD to come forward and voluntarily disclose this. IRAS has also announced that it would reward whistle-blowers who call out buyers who are exploiting the 99-to-1 scheme with up to $100,000. So, if your property agent tries to persuade you to decouple your property to avoid ABSD, know the risks.

It is also important to note that tax evasion is illegal. Intentionally reducing or avoiding your tax liability, or obtaining tax refunds through illegal means, opens you up to a slew of legal consequences, all of which are more severe than the ‘savings’ you may be trying to find, even via legal ‘loopholes’.

In the end, decoupling may not even be the best cost-saving measure when buying multiple properties. Dr Tan Tee Khoon, Country Manager – Singapore, PropertyGuru said: "Besides not having to worry about the legalities of such ABSD avoidance strategies, paying ABSD could in fact be less costly, given the expenses that could be incurred. With decoupling, there are conveyancing fees, Buyer’s Stamp Duty (BSD), Seller’s Stamp Duty (SSD) (if the property is decoupled within the first three years of purchase), prepayment penalties for a bank loan, and other miscellaneous costs such as valuation fees – the total of which could amount to more than the ABSD payable depending on the value of the existing property in question and especially if the next property to be purchased is comparatively cheaper than the current."

In the meantime, if you’re still interested in decoupling, here’s what you need to know.

Common among married couples, a joint tenancy basically means that all co-owners of the property will have an equal stake.

For example, if you and your spouse co-own a property together, both of you will each have a 50% share of the property. If you’re joint tenants with three other owners, each will own 25%, and so on.

Note that all co-owners will also have equal rights, so it’s impossible for one owner to kick another owner out, even if that owner pays a bigger chunk for the property. The right of survivorship also applies in a joint tenancy, which basically means that if one of the owners passes on, the other owner(s) will get their share of the property, regardless of whether there’s a will or not.

Decoupling under a joint tenancy is typically more complicated as it usually involves a divorce.

To decouple property, you’ll need to go through a legal severance, in which you must approach a lawyer and sign an Instrument of Declaration and lodge it with the Singapore Land Authority (SLA). After that, you must send a copy of the Instrument of Declaration to the other joint tenants. See? Complicated.

Conversely, with a tenancy-in-common, each of the tenants-in-common has different ownership stakes in the property. For example, you could own 70% of the property while your spouse owns 30%.

It’s important to note that having a bigger share doesn’t mean that you can kick someone out, or have greater rights to make legal decisions on your own. Unlike a joint tenancy, however, tenants-in-common can sell their shares to someone else.

Another difference is that if one of the co-owner passes away, their share will be distributed according to what’s written in their will. It will not be absorbed by other co-owners of the property, like in the case of joint tenancy. So say if you passed away, your share of the property will be given to the person in your will (e.g. children, spouse, sibling, parents, etc.), instead of the other co-owners.

However, this means that your spouse can also list their beneficiary of choice in their will. If your spouse lists their mother in the will, for instance, that means you could be sharing the property with her.

If you’re joint tenants, the good news is that you can switch the manner of holding from a joint tenancy to tenancy-in-common and vice versa. This is quite easily done for private properties, but for HDB flats, you will need to get assistance from the HDB.

When switching from a joint tenancy to tenancy-in-common, note that both owners will continue to have a 50-50 share. So it is just a legal change. Stake-wise, both you and your spouse will continue to hold a 50% share of the property.

In contrast, switching from a tenancy-in-common to a joint tenancy by way of declaration is only possible if both tenants-in-common already have equal shares. If not, the owners must give part of their share to another owner, and the transfer might be subject to stamp duties.

That means that if the ownership is currently split 60-40, you will first have to transfer shares to make it 50-50 before you can apply to switch to a joint tenancy.

For private properties, the process is more straightforward. The contract should specify three things: the property, the price and the parties involved (i.e. you and your spouse). You’ll need to seek a lawyer’s help to draft the contract and must fulfil section 6(d) of the Civil Law Act.

Here are three things to take note of, namely:

Many of us tap into our CPF accounts to finance our homes. When transferring your shares to the buyer, you’ll need to return all the CPF monies (including accrued interest) back to your CPF account. The remaining deficit will be settled by the sales proceeds.

If you’re 55 years old and above, the CPF monies refunded will be used to top up your CPF Retirement Account, and the balance will be diverted back to your CPF Ordinary Account (OA).

If there’s an outstanding loan, this must be paid off with a new mortgage from the bank. You’ll also need to know if there’s any penalty for taking out a fresh mortgage, or whether the new owner can support the fresh mortgage. Remember, life can get unpredictable, so it’s good to be prepared for unforeseen events (e.g. retrenchment, termination, pay cut, illness, divorce, etc.).

To plan your financial health and future, speak to Mortgage Experts.

You might need to pay Seller’s Stamp Duty (SSD) if the existing property was bought within three years.

When transferring the shares from one co-owner to the other, the owner who’s ‘buying’ the shares will need to pay BSD.

So say that you and your spouse each own a 50% share of a $1 million property. Your spouse then transfers 50% (i.e. $500,000) of her shares to you, which means you need to pay $9,600 in BSD. In addition to that, you will also need to account for additional costs such as conveyancing fees, which could easily amount to thousands of dollars. In the end, the cost of decoupling could end up being higher than paying ABSD.

As for the 99-to-1 rule, the downside of this is that in the event of a divorce, your spouse might own 99% of the property. You could battle this out in court, but it would just make things ugly and only increase legal costs. So do consider this closely before signing.

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