99-to-1 property share split illegal?

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[Update connected 9 May 2024: IRAS to claw backmost S$60 million from backstage spot buyers who utilized ’99-to-1′ strategy to trim ABSD]

The Singapore taxation authorities known arsenic Inland Revenue Authority Singapore (IRAS) launched an audit of backstage spot purchases successful April 2023.

Their focus: 99-to-1 spot ownership successful Singapore that has been utilized arsenic a loophole, to debar Additional Buyer’s Stamp Duty (ABSD).

If you’re looking to put successful Private properties successful Singapore and person been sounded a akin arrangement, here’s everything you must cognize earlier you motion connected nan dotted line!

What is 99 to 1 spot scheme?

The 99-to-1 spot strategy is simply a shape of backstage spot acquisition statement wherever nan proprietor of a spot sells 1% of their liking to a co-owner. The co-owner would only request to salary ABSD connected nan 1%, but would beryllium capable to co-apply for a bank loan based connected their financial capacity.

This “tenancy successful common” statement is simply a loophole commonly utilized by spot owners to debar paying ABSD connected their purchases connected further backstage properties.

Here’s really it is commonly used:

How is nan 99-1 statement commonly used?

We will exemplify pinch an illustration of a Father purchasing a spot for a spouse/child but it tin use to immoderate 2 persons. 

The presumption successful this illustration are arsenic follows:

  1. The Father has nan expertise to unafraid a slope indebtedness arsenic nan spouse/child does not person immoderate income.
  2. The Father is an existing spot proprietor and will bargain a 2nd spot solely nether nan spouse’s/child’s name. 
  3. The spouse/child does not ain immoderate spot currently. 
  4. After this purchase, nan spouse/child will ain 100% of this caller property.

Within a very short clip framework aft nan spouse/child purchases nan property, nan spouse/child will past waste 1% of this recently acquired spot to nan Father. As nan Father has an existing spot and has now purchased 1% of a 2nd property, he will incur ABSD connected his 1% acquisition.

As nan Father is now a co-owner of this 2nd property, he is capable to go a co-applicant for slope loans of nan property.

Even though nan Father’s liking is only 1%, nan slope will supply a indebtedness based connected nan financing capacity of nan Father alternatively than limit nan financing to simply nan 1% ownership stake.

This 1% waste is typically done wrong a fewer weeks of nan spouse/child signing nan Sales & Purchase statement arsenic nan spot is required to unafraid a slope indebtedness wrong this clip frame.

In summary, this is simply a 2 shape woody to evade taxes arsenic nan first shape involves nan spouse/child purchasing 100% of nan spot and nan 2nd shape involves nan 1% liking sale.

If nan Father and nan spouse/child bargain nan portion together from nan start, ABSD is payable connected nan afloat transaction magnitude arsenic agelong arsenic 1 of them is an existing spot owner. 

The 2 shape woody allows them to salary ABSD for only nan 2nd shape which is simply a 1% liking sale.

To beryllium clear, nan first shape of this building does not incur immoderate ABSD. 

IRAS steps in…

While spot stock splitting is ineligible successful Singapore, IRAS believes that this is simply a commonly utilized taxation avoidance strategy and has group retired to audit backstage spot purchases.

Although commonly referred to arsenic nan 99-to-1 scheme, tenancy successful communal allows co-owners to divided their shares successful immoderate ratios. The IRAS will apt audit each different ratios of spot ownership too, if location are reasons to judge that nan statement was contrived aliases artificial.

Are each 99-to-1 arrangements considered arsenic “tax avoidance” schemes?

Another communal script is simply a process termed arsenic “decoupling” – it is often utilized by newlywed couples who do not ain spot but would for illustration to acquisition their first backstage property now and subsequently acquisition different backstage property, aft they person had a fewer years to build up their savings. 

The mates would typically utilise a 99-1 tenancy successful communal ownership setup. Typically, nan little income earner would clasp nan 99% ownership liking while nan higher income earner would clasp a 1% ownership stake. 

As we person explained earlier, nan 1% proprietor is capable to go a co-applicant for slope loans of nan spot to nan fullest grade of his/her financing capacity and is not constricted to simply financing nan 1% stake.

After a fewer years, nan 1% proprietor will waste his liking to nan 99% proprietor and acquisition a 2nd spot nether his/her ain name.

Typically, group judge that nan 2 transactions are not connected and should not beryllium viewed arsenic a contrived aliases artificial taxation avoidance scheme.

Gray areas: IRAS’ call

That said, nan supra whitethorn besides beryllium considered a taxation avoidance scheme if IRAS tin show that nan sole volition of nan 1% shareholding building was intended from nan onset to debar early ABSD. 

For example, if nan 99% proprietor is incapable to unafraid capable financing for nan original spot without nan 1% proprietor being involved.

Although immoderate transactions do not look for illustration an artificial taxation avoidance scheme, it depends connected nan facts and circumstances surrounding each transaction.

Potential homeowners are champion disconnected consulting ineligible aliases taxation professionals if they are unsure.

So, what’s nan ineligible statement to bargain backstage property?

Besides nan decoupling method which seems to beryllium ineligible on nan surface, location are a fewer different clear ineligible ways. The 2 astir communal methods are:

1) Sell one, bargain two.

This is simply a communal strategy whereby a mates sells their nationalist lodging spot and usage nan proceeds to separately get 1 backstage spot each. Each spot will beryllium solely held by 1 person.

As some persons person nary spot astatine nan clip of purchase, neither will incur ABSD. Both will person to unafraid financing for their mortgages individually.

2) Purchase nether a Trust

This involves buying a spot nether a spot for a insignificant (i.e., personification who is beneath nan ineligible age).

However, since May 2022, location is simply a 35% ABSD complaint connected immoderate transportation of residential spot into a surviving trust.

Also, arsenic nan beneficiary of nan spot is nan minor, it is improbable nan slope will supply immoderate shape of financing.

Closing statements

IRAS announced connected May 8 that they will claw backmost S$60 cardinal from backstage spot buyers who utilized nan ’99-to-1′ strategy to trim ABSD, aft reviewing 187 cases, of which 166 were recovered to impact taxation avoidance.

About 10 of these cases are presently nether reappraisal by nan Council for Estate Agencies. IRAS will besides mention individuals who beforehand aliases facilitate specified taxation avoidance arrangements to nan applicable regulatory agencies.

Buyers are champion disconnected steering clear of immoderate schemes that whitethorn beryllium challenged by nan authorities and should consult professionals to understand nan consequences earlier entering into immoderate transactions.