Ah, the ’99 to 1′ loophole. Let’s cut to the chase: you and your spouse are considering buying another property but don’t want to pay the huge Additional Buyer’s Stamp Duty (ABSD) tax for owning multiple properties. You do a Google search to see if there are any workarounds and learn about the ’99 to 1′ ABSD loophole or decoupling property in Singapore.
Property decoupling was previously considered a ‘holy grail’ solution that enabled couples to buy ‘ABSD-free’ investment properties. However, the Inland Revenue Authority of Singapore (IRAS) announced 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 for unpaid stamp duty and a 50% surcharge on the additional duty payable too. Ouch!
In fact, as of April 2024, the IRAS has uncovered 166 of such ’99 to 1′ ABSD loophole cases and will claw back about $60 million. 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!
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What Is Property Decoupling in Singapore?
Singaporeans have something of an obsession when it comes to buying properties as investments. However, buying a second property – for investment or as a home – comes with a hefty property tax.
Singapore Citizens buying a second or subsequent residential property are liable to pay ABSD. To avoid paying ABSD on such a residential property purchase, a Singapore Citizen 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 to purchase another property without incurring ABSD.
What Is the ’99 to 1′ Loophole? How Does Property Decoupling Work?
If you’re wondering, "What is the ’99 to 1′ loophole? Hang on, we’re getting there. 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 property ownership, the former can buy another property without incurring ABSD.
Why Do Couples Decouple?
But why to go to the trouble of decoupling, you might ask? Why not 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 must ensure that any amounts they lend buyers do not exceed the Total Debt Servicing Ratio (TDSR). TDSR limits a borrower’s 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 both spouses’ combined gross monthly income will be used to calculate the TDSR, allowing them to borrow more.
TLDR, this 99-to-1 scheme allows couples to borrow more money from banks when initially buying the property and later buy ‘ABSD-free’ investment properties.
Will Action Be Taken Against People Who Decouple Property to Avoid ABSD Intentionally?
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 April 2023 property cooling measure round, a 65% ABSD rate for trustees was implemented. This can be seen as an intervention against investors who wanted to ‘avoid’ ABSD by transferring ownership of their properties to their young children.
As mentioned, IRAS is keen to investigate 99-to-1 arrangements. Aside from encouraging individuals who have entered a 99-to-1 arrangement to avoid ABSD to come forward voluntarily, the IRAS has also announced it would reward whistle-blowers. Those who call out buyers exploiting the 99-to-1 scheme can get 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 many legal consequences, all more severe than the ‘savings’ you may be trying to find, even via legal ‘loopholes’.
Should You Decouple or Not?
You should only decouple if it makes sense for your financial situation. Considering decoupling as a cost-saving measure when buying multiple properties, you might be surprised by how much it costs.
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 be less costly, given the expenses that could be incurred. With decoupling, there are legal and 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 could amount to more than the ABSD payable depending on the value of the property in question, especially if the next property to be purchased is comparatively cheaper than the current."
Here are some costs you have to pay attention to when you decouple.
1. Returning Money to CPF Account
Many of us tap into our CPF accounts to finance our homes. When transferring your shares to the buyer, you must return all the CPF monies (including accrued interest) 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 you decide to sell the property again, the net proceeds from the sale will likely be smaller.
2. Clearing Your Outstanding Mortgage
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.
Life can get unpredictable, so it’s good to be prepared for unforeseen events (e.g., retrenchment, termination, pay cut, illness, divorce, etc.).
3. Paying Buyer’s Stamp Duty
When transferring the shares from one co-owner to the other, the owner buying the shares must pay BSD.
So, say 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.
Dr Lee Nai Jia, Head of Real Estate Intelligence, Data and Software Solutions, PropertyGuru Group adds that the spouse who transfers ownership of the property to the other may stand to "lose out". The downside of the 99-to-1 rule 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 make things ugly and increase legal costs. So, consider this carefully before signing.
4. Decoupling Is Not Instantaneous
Furthermore, decoupling your property in Singapore is not instantaneous. The process takes 10 to 12 weeks (if a loan or CPF money is involved). If not, the decoupling process can happen within a month.
As you can tell, decoupling is a lot of work and not always a ‘win’. Our experts’ general advice is not to decouple just to avoid ABSD. If you’re still interested in decoupling, here’s what you need to know.
Can You Decouple Your HDB Flat?
You cannot decouple your HDB flat if you are a married couple. Decoupling property in Singapore largely concerns private property only.
Because many HDB homeowners were abusing the HDB ownership transfer rule, it was tightened in 2016 to allow only transfers in six special cases: marriage, divorce, death of an owner, financial complications, renunciation of citizenship, and medical reasons.
How to Decouple Private Property in Singapore
For private properties, the process is more straightforward. The contract should specify 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 fulfil section 6(d) of the Civil Law Act.
You can decouple it by sale or transfer it as a gift.
1. Transfer It as a Gift
You can transfer your share of a property as a gift without receiving any payment (i.e. transferring your share for $0). This is only possible if the property is unencumbered (i.e. no outstanding mortgage or CPF charge).
2. Dispose of It by Way of Sale
Another way is to sell your part of the share to your spouse. Here’s when the manner of holding is important, whether it’s a joint tenancy or tenancy-in-common.
Understanding Joint Tenancy Vs ’99 to 1′ Loophole Via Tenancy-in-common
Joint-tenancy: 50/50 Stakes, Usually the Case for Married Couples
Common among married couples, a joint tenancy means that all co-owners of the property will have an equal stake.
For example, if you and your spouse co-own a property, you will each have a 50% share. If you’re a joint tenant 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 out, even if that owner pays a bigger chunk for the property. The right of survivorship also applies in a joint tenancy, which 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.
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, sign an Instrument of Declaration, and lodge it with the Singapore Land Authority (SLA). After that, you must send the other joint tenants a copy of the Instrument of Declaration.
Tenancy-in-common: Different Stakes, Property Decoupling More Straightforward
Conversely, with a tenancy-in-common, each tenant-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 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-owners 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 would 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 the beneficiary of choice in their will. If your spouse lists their mother in the will, you could be sharing the property with her.
Can You Switch from Joint Tenancy to Tenancy-in-common?
If you’re a joint tenant, the good news is that you can switch the manner of holding from a joint tenancy to a tenancy-in-common and vice versa. This is quite easily done for private properties, but for HDB flats, you will need 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, you and your spouse will continue to hold 50% of the property.
In contrast, switching from a tenancy-in-common to a joint tenancy by declaration is only possible if both tenants 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.
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