Singapore has been closely monitoring the movement of the property market and has adopted a means of fine monitoring. A property policy released, applicable to the scope of trust purchases, aims to fill the existing gap.
Briefly, let's talk about this new policy.
1. If a residential property is transferred to a living trust, an additional stamp duty of 35% will be payable from now on.
2. Those who meet the three categories can apply to the Inland Revenue for a refund.
What is a trust to buy a house?
A parent buys a home in the name of a child.
A living trust, which is a trust established during the life of the principal.
The current real estate policy in Singapore, the additional buyer's stamp duty rate is related to the status of the buyer.
Singapore citizens, as well as citizens of five other countries such as the United States, enjoy a preferential ABSD rate when buying their first property. The ABSD tax rate is up to 30% for foreign nationals purchasing a house.
Therefore, in recent years, many buyers, whose young children are Singaporean or U.S. nationals but the buyers themselves are Chinese nationals, have taken a trust purchase to purchase the property in the name of their children and enjoy the ABSD-free concession for the first home.
Because banks cannot give loans to minors, the transaction of buying a property in trust for young children requires full payment.
New policy introduced in Singapore.
Trusts are required to pay stamp duty upfront for property purchases and can apply for a refund if they meet 3 conditions.
This new policy strengthens the regulation and restriction on the purchase of properties in trust.
When the new measure comes into effect on May 9, all buyers who purchase a home through a trust will need to pay an additional 35% buyer's stamp duty upfront.
The three conditions are
1. The beneficiary of the trust must be an identifiable natural person. The beneficial owner cannot be set up as another trust or as an unborn fetus. The beneficiary must be an identifiable natural person with proof of identity.
2. The trustee has paid the 35% Additional Buyer's Stamp Duty.
3. The refund application must be made within six months from the date of execution of the trust.
However, refunds are not allowed in the following two cases
1. When a trust buys a house, the beneficiary of the trust needs to hold the ownership of the house immediately and cannot set an age condition to delay the execution.
Many parents who entrust their minor children with the purchase of a home specify that the children must be 21 years of age to execute the trust and actually own the property.
The IRS has made it clear that such purchase trusts with age conditions will not be returned to ABSD.
2. When a trust is set up to buy a home, no condition like this can be set after graduating from college.
Parents set up a trust to buy a house for their children. , the child holds 50% of the ownership and the other 50% needs to be held after college graduation, this kind of purchase trust with similar condition will not be refunded to ABSD.
Another situation where taxes can be refunded.
In June 2022, I used a trust purchase for my child, who is a Singapore citizen, to buy a condominium.
This is my child's first property. , the child owns the entire interest in the trust and the trust has no revocation or change conditions.
In this case, the buyer is eligible for a tax refund by submitting the application and supporting documents within the period allowed for the Singapore tax refund.
This is the child's first property and the ABSD tax rate for the refund will be 35% for all properties.
The refund amount is the difference between the additional 35% stamp duty paid on the purchase of the property and the tax rate payable by the beneficiary of the trust.
For example, if the beneficiary of the trust is a child of Singaporean or US nationality and has no property in his or her name, he or she is entitled to a preferential ABSD rate of 0%.
The amount of tax refund is 35% - 0% = 35%.
If the beneficiary of the trust is a child with Singapore permanent resident status and has no property in his or her name, he or she is entitled to a preferential ABSD tax rate of 5%.
The amount of tax refund will be 35% - 5% = 30%.
