HOW TO LEGALLY AVOID ABSD FOR PROPERTIES IN SINGAPORE
Own a property in Singapore and would like to avoid ABSD?
Well, the 1990s was quite the period for Property investors in Singapore. They floated around in sheer glee at how purchasing property in Singapore was a walk in the park, with each owned property paying for subsequent properties
At that time, the property invest were having the times of their lives with the rent of one property paying for the second and that of the second property paying for the third.
Unfortunately, we have seen nails being put in the coffins of these strategies ever since the new rule of ABSD (Additional Buyers Stamp Duty) was inducted. The ABSD imposes massive amounts of taxes on every subsequent property you own after your first one.
It certainly has the upside of making your first home a lot more affordable. At the same time, it is now going to cost you a lot if you plan on expanding your property in Singapore.
Here are the legal ways you can adopt to avoid paying the ABSD:
Purchasing an executive condominium (for upgraders)
Decoupling (if the expenditures don’t surpass the ABSD)
Invest under a trust (if you have a lot of cash in hand)
You have to sell one and then buy two
Acquire a dual-key unit
Finally, Get a commercial property
1. Purchasing an executive condominium(for upgraders)
The ABSD can be especially troublesome when you just want to buy a new property, and you don’t even have the intention of owning two properties. You will still have to pay the hefty amounts of 12 percent (or 15 percent for permanent residents) ABSD on the second property first.
Regardless, you can apply for the remission if you sell your previous property within six months of buying the new one. However, it still demands a lot of extra cash to be at your disposal without even having a real need for it.
The good news is that the ABSD only applies to private condos, and you will be exempt from it if you buy an Executive Condominium (EC). You will, however, still need to sell your previous place within six months, but at least you won’t have to have a ton of extra money upfront.
*You can pay stamp duties like the ABSD with your CPF*
2. Decoupling (if the expenditures don’t exceed the ABSD)
It is one of the most advocated methods, but keep in mind that it too has its pros and cons, and it does not always work.
It works on the primary working principle that one of the partners transfers their stake to the other and then goes on to buy a new estate. Since they now do not own the previous property, they will not have to pay the ABSD on this one.
Keep in mind that this transfer of shares is not free, and it comes with a Buyers Stamp Duty (BSD) that you will still have to pay.
Let us take an example where a piece of land is worth almost $2 Million, and what ends up happening are that your spouse switches about half the estate to you. Now you will have to pay for the BSD on half of it.
No doubt, other stamp duties will be involved as well; for example, the Sellers Stamp Duty (SSD) is applicable if you sell the estate within three years or 36 months of acquiring it. It tends to apply just on the transferred portion.
Plus, you will also have to pay the decoupling expenses, which are usually in the range of around $5000.
Therefore, you should always make sure that the decoupling process will cost you lesser than the ABSD itself because otherwise, there is no point in using it.
Another point to note is that you cannot decouple a HDB. (The government removed this rule as of 1st April 2016) As such, many investors, in order to own multiple properties tend to sell their first HDB and purchase an executive condominium (as above), and then decouple later,
If you have any queries regarding it, feel free to leave us a message, we will help you work out the numbers.
3. Invest under a trust (will require a lot of liquid in your possession)
You can simply purchase a property and then name it as a trust for your children. It will then be your children’s property, and you will not have to pay ABSD. But be cautious and have a good lawyer because it can be a tricky business sometimes.
For example, once your children get it from you under trust, they will not be able to get an HDB flat for themselves. Also, they will then have to pay ABSD on any property that they purchase from that point on.
You will have to be careful in this case, though. The government might realize your motive, and in that case, they can impose the tax. So, make sure to thoroughly talk it through with your lawyer before taking any steps or use our preferred lawyers who have done such cases before on how to draft the trust out.
Besides, you cannot get a bank loan for trust property. You will have to pay it in cash. However, if you own a private property or other equity, you can take a mortgage/equity loan out of your asset to at least take some loan.
For a more detailed write-up on trust, read our article on how to buy property under trust in Singapore.
4. You can Sell One and then Buy Two
This is 1 of the most common method to avoid paying ABSD in Singapore. If you sell one of your properties, you can then go and get yourself as well as your spouse one feature each.
Let us take another example:
Consider that you sell your six-bedroom flat for $600k. Now you lend a down payment of $375,000 on a $1.5 million condo. You use your original name while doing all this.
Your spouse then goes for a smaller condo, say an $800,000 one. She gives $200,000 as of the down payment of it. She purchases this condo under her original ID name.
Since neither you nor your wife owns any property at the time of purchase, no ABSD liability will rest on you or your wife.
For this to be valid, however, both of you have to qualify for your mortgages, respectively.
5. Consider Purchasing a Dual-Key Unit
Basically, a dual-key unit has one mutual foyer, which afterward splits into two different and distinct sub-units.
This allows for two separate families like a landlord or a tenant or your family and your in-laws to co-exist in the same space.
The thing is that this dual-key unit would be considered as a single property, so you would not have to worry about paying any ABSD here.
6. Get a commercial property
There is no ABSD on commercial properties. There is, however, a GST, which is seven percent at the time of writing.
So, rather than going for a purchase of a second condo, consider investing in a coffee shop or an industrial space, etc, Make sure to do your homework, though, since the commercial property is an entirely different ball game from private property.
7. Under 1 Property Each
Finally, the simplest method for ambitious couples: just put the first home under one spouse.
If you can handle it, consider owning and paying for the whole property by yourself. Later on, once you have sufficient savings, your spouse can go and buy another property.
This way, you will have two properties in the family without ever having to pay the ABSD. It may take some time, but it is one of the most hassle-free methods out there.
So there you have it, 7 ways to avoid ABSD when you want to purchase properties in Singapore.
So this was a detailed guide on how to avoid ABSD for Singapore Properties. Be sure to read the whole thing again in order to develop a thorough understanding of the whole procedure.
The thing with these methods is that it may be a little time consuming and difficult to understand but it is important to learn how best to avoid paying ABSD to buy properties in Singapore.