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Additional Buyer’s Stamp Duty (Trust) of 35% kicks in

An ABSD of 35% kicks in on or after 9/5/2022 when you transfer residential properties into a living trust.

Trust is a legal arrangement that allows you to manage or distribute your asset. There are three parties in a trust. You are known as the settlor that set up the trust. The trustee, the person you appointed to manage the trust and Beneficiary, will benefit from this arrangement.

 

For this context, asset here means residential property. For example, I (the settlor) set up a trust and appoint my wife (trustee) or anyone to manage the property for the benefit of my children (beneficiaries).

Why set up a trust?

It depends on your situation, and people set up a trust for different reasons. Commonly, people set up trusts to protect the interest of their children. It may be for minors or special needs who cannot handle their financial affairs, including children who are careless with money. Alternatively, you may want the property transferred when the child hits a particular milestone in their life. For example, the child hit 21 years old or graduated from university. The settlor can also use the trust to protect family assets from creditors or in the event of divorce.  

What exactly is living trust?

The living trust is set up during the settlor’s lifetime, where assets are transferred to the trust. The settlor, the person who bought the property, can change, or amend the trust, although the Beneficiary still retains the interest. It is different from a Testamentary Trust, which is made using a will and takes effect after the settlor’s death, and this is irrevocable.

Before 9th May, a living trust can be structured in a manner where you do need to put a name for the Beneficiary, and it can be a condition attached for the Beneficiary. When the residential property is transferred into the trust, no identifiable beneficial owner is needed, and you do not need to pay ABSD (Trust). The Living Trust also can be revoked or amended.

An unidentifiable beneficial owner does not exist when the trust is set up, or can be some conditions attached to the Beneficiary. For example, I set up a trust and appoint my wife as trustee to manage my property for the benefit of my unborn child or future child, or my child must turn 21 years old before the property is transferred to my child. These are all considered unidentifiable beneficial owners.

On or after 9TH May

The difference now, for any transfer of residential property into a living trust, whether identifiable or unidentifiable beneficial owner must pay a flat ABSD (Trust) of 35% upfront. The Additional Buyer’s Stamp Duty (ABSD) for the living trust can be seen as a “wealth tax”. When you buy a residential property and hold it in trust, you need to pay the property in all cash. Commonly, the rich will do this, and their child is the Beneficiary, who is often 21 years old and below. The Beneficiary can’t loan from any banks, and there will be no ABSD for this property if this is the Beneficiary’s first property. For subsequent property, the usual ABSD still applies. The government would see an ABSD (Trust) introduction of 35% to address and close any policy gap from the buyers who pay ABSD for subsequent properties. ABSD (Trust) will not be applicable when the residential property is held on trust before 9th May 2022.

Is there remission of ABSD (Trust)?

The trustee may apply to IRAS for a refund of ABSD (Trust) when all beneficial owners are identifiable individuals. It must be someone that exists and can be named. Beneficial ownership of the residential property has vested in all these beneficial owners at the time of property transfer into the trust. The beneficial ownership cannot be altered or revoked or be subject to the change of conditions under the terms of the trust.

In other words, you must set up the trust very clearly. For example, I set up the trust, and the beneficial owner is my child, named John, without underlying conditions, and I am transferring to him now.

The amount refunded will depend on how many properties the Beneficiary is holding. You must apply for a refund to IRAS within six months after exercising the instrument. The instrument can be the exercise of the option to purchase or sales & purchase agreement.

For example, my child, John (identifiable beneficial owner) under the trust, is a Singaporean who owns one property. The property under the trust is the second property. Therefore, the total amount of ABSD refunded will be 18%. 35% (ABSD Trust) – 17% (2ND property ABSD) of the purchase price or market value of the residential property (whichever is higher).

Bottom Line

This new ruling affects a small number of individuals, and the “loop-hole” is somewhat covered now. A living trust requires the settlor to pay in total cash, and it will not affect buyers buying under normal circumstances. This round of cooling measure of living trust act as a wealth tax on the rich and level the playing field for all property buyers.