Cash-rich buyers who have been circumventing Singapore’s additional buyer’s stamp duty (ABSD) regulations by making residential property purchases via trusts that are conditional or revocable may no longer be able to use that loophole.
This is after a new regulation kicked in on May 9 that will subject transfers of residential properties into a living trust to an ABSD of 35 per cent.
A living trust is created by a person during his lifetime. It is a document where a designated person, the trustee, is responsible for managing that person’s assets for the benefit of the beneficiary.
Lee Liat Yeang, senior partner at Dentons Rodyk’s corporate real estate practice, said the new rule “seeks to plug a loophole exploited by those who do not create a genuine trust for a real, identifiable beneficiary, or who create conditional or revocable trusts”.
He said: “This is aimed at preventing a situation where the beneficiary will not become the real owner of the property. The property is in fact controlled by the person who created the trust, and who is trying to avoid paying ABSD by not buying it in his own name.”
Under current regulations, buyer’s stamp duty is payable when a residential property is transferred into a living trust. ABSD may also be payable, based on the profile of the beneficial owner of that property.
Previously, ABSD did not apply when there was no identifiable beneficial owner when the property was transferred.
But as of May 9, ABSD (Trust) is payable even if there is no identifiable beneficial owner, the Ministry of Finance said.
In addition, equity interests in residential property holding entities that are transferred into living trusts on or after May 10 will now be subject to additional conveyance duties (ACD Trust) even if there is no identifiable beneficial owner, the ministry said on May 9.
The ACD (Trust) is a stamp duty chargeable on the transfer of shares of a company that holds the residential property (which comprises at least 50 per cent of the company’s total tangible assets), Lee said.
Karamjit Singh, CEO of property investment sales firm Delasa, noted that the new rule requires the trustee to pay ABSD (Trust) of 35 per cent of the purchase price upon exercising the option to purchase before seeking a refund.
A trustee may apply for a refund of the ABSD (Trust) if certain conditions are met – namely, that all beneficial owners are identifiable, that the beneficial ownership has been vested in all of them and cannot be revoked, varied or subject to subsequent conditions. The application must be made within six months after the instrument is executed.
Under the new law, however, there can be instances where the trustee will not be entitled to the refund, Singh said.
For instance, a trust deed could be structured in a way “where the beneficiary needs to fulfil certain conditions, such as getting married by a certain age, turning 21 or graduating from university, before being entitled to the interest in the property”.
Singh said: “Because of the unfulfilled conditions attached, the beneficiary is not regarded as identifiable. In these cases, the trustee would not be entitled to the refund.”
Nonetheless, the new rule is unlikely to have a big impact on the market because properties bought under a trust must be funded only with cash, and most people cannot afford to do this, OrangeTee & Tie CEO Steven Tan said.
When asked, the ministry said: “We do not have data on transfers of residential property into trusts where ABSD was not applicable.”
Nicholas Mak, head of research at ERA Realty Network, said: “The government may be anticipating more foreign capital coming to invest in Singapore, including in the real estate market.”
Some high net worth individuals or family offices may use complex multi-layer ownership structures to mask the true ownership of certain assets, Mak said.
“For example, the beneficial owner of a living trust could be another trust, and the owner of the second trust could be a third trust. These structures are usually used by high net worth individuals to acquire or transfer very expensive real estate,” he added.
The ministry also said that stamp duty is payable on renunciation of interest in a residential property held on trust, and the beneficiary must inform the Commissioner of Stamp Duties within a stipulated period, or risk a fine.
“If a person created a trust for residential property, and the beneficiary subsequently renounced his interest in the trust, then the rights in the property will go back to the person who created the trust. And this person will have to pay applicable stamp duties, including ABSD,” Lee said.
THE STRAITS TIMES (SINGAPORE)/ASIA NEWS NETWORK