Decoupling Property: Why And How To Buy Your Co-Owner’s Share Of The Property

Decoupling via tenancy-in-common, joint tenancy and converting your manner of holding, can you do it?

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. So you Google if there are any workarounds… And then you learn about decoupling property.  

If you want to know more, read on: This article covers everything you need to know about how you can buy your co-owner’s share of the property, as well as the differences between a joint tenancy and tenancy-in-common. 

So without further ado, let’s get right to it!

 

But first, what is decoupling and why do couples do it?

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

To avoid that, many co-owners – usually married Singaporean couples – would ‘decouple’ by transferring his/her share to the other co-owner. This would make one person the sole homeowner of the existing home, freeing up the other person to purchase another property without incurring ABSD. Smart right?

In short, some co-owners in Singapore practice decoupling to transfer their share of the property to their spouse so that they can buy another property as a ‘first-time’ buyer, thus avoiding the extra ABSD tax. 

If your spouse is a Singapore Permanent Resident, he or she would need to pay ABSD, regardless of whether he/she owns a property, on top of Buyer's Stamp Duty (BSD) and other mortgage penalties involved.

Note: Decoupling is tricky for HDB flats

Do note that decoupling is tricky when it comes to HDB flats. Because many HDB homeowners were abusing the HDB ownership transfer rule, it was tightened in 2016 to only allow transfers under six special cases: marriage, divorce, death of an owner, financial complications, renunciation of citizenship and medical reasons. Read our HDB ownership transfer guide here.   

 

How homeowners can decouple property

When it comes to decoupling, there are two ways to do this. Either transfer your share of the property as a gift, or sell parts of your share to the other owner.

Transfer 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. there’s no outstanding mortgage or CPF charge. Otherwise, some extra funds would be required for the outstanding mortgage and/or refund of the CPF monies. 

Transfer by way of sale

Another way is to sell your part of the share to your spouse. The process is different for both HDB flats and private properties, but before we get into that, you’ll need to know the manner of holding; whether it’s a joint tenancy or tenancy-in-common.

Recommended article: 8 Ways to Avoid ABSD (and Why You Should Always Think Twice Before Doing It)

 

Joint tenancy vs tenancy-in-common: What’s the difference?

Basically, if you bought a property with someone else, the distribution of the property will depend on how it’s shared (i.e, whether it’s a joint-tenancy or tenancy-in-common). 

Joint-tenancy: 50/50 stakes, usually the case for married couples 

The first is joint tenancy. 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 his/her share of the property, regardless whether there’s a will or not.

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

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

Tenancy-in-Common: different stakes, decoupling more straightforward 

Conversely, with a tenancy-in-common, each of the tenants-in-common have different ownership stakes of 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, that co-owner’s share will be distributed according to what’s written in his/her 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 his/her beneficiary in the will. If your spouse lists his/her mother in the will for instance, that means you could be sharing the property with her. 

 

Can you switch from joint tenancy to tenancy-in-common?

If you’re joint tenants, don’t worry, because 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 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 each hold 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 subjected to stamp duties as well.

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. 

 

Decoupling for private properties

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 3 important things to take note of, namely:

CPF

Many of us tap our CPF accounts to finance our home and 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 and above, the CPF monies refunded will be used to top up your CPF Retirement Account, and the remaining balance will be diverted back to your CPF Ordinary Account (OA). 

Outstanding mortgage

If there’s an outstanding loan, this must be discharged (i.e. paid off) with a new mortgage from the bank. You’ll also need to know if there’s any penalty for taking 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 such as retrenchment, termination, pay cut, illness, divorce, etc. 

To plan your financial health and future, speak to our PropertyGuru Finance Advisors

Seller’s Stamp Duty

You might need to pay Seller’s Stamp Duty (SSD) if the existing property was bought within 3 years. 

Buyer's Stamp Duty

When transferring the shares from one co-owner to the other, the owner that's 'buying' the shares will need to pay BSD.

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

Therefore, before deciding to decouple, always ensure that the cost to decouple is lower than paying ABSD.

However, there's also the 99-1 rule where you and your spouse both own 99% and 1% share of the property as tenants-in-common. You then transfer/sell your 1% share to your spouse when you want to decouple, and your spouse would only need to pay BSD/SSD for the 1% share, which is way lower than paying for 50%.

The downside of this is that in the event of a divorce, your spouse would 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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This article was written by Victor Kang, Digital Content Specialist at PropertyGuru. When he's not busy churning out engaging property content* or newsletter copies, he's busy being a lover of all geeky things. Say hi at: victorkang@propertyguru.com.sg.

*I mean, I'll try

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