Singapore: New Additional Buyer's Stamp Duty rules for transfers of residential property into trusts

In brief

With effect from 9 May 2022, Additional Buyer's Stamp Duty (ABSD) of 35% will apply on any transfer of residential property into a living trust. Previously, ABSD did not apply where the trust had no identifiable beneficial owner at the time of the transfer. 


Contents

Key takeaways

  • ABSD will be imposed at a rate of 35% on any transfer of residential property into a trust where the transfer takes place on or after 9 May 2022. This is referred to as ABSD (Trust).
  • The trustee may obtain a remission of part or all of the amount of ABSD (Trust) paid, if all remission conditions are met.
  • One key condition for remission of ABSD (Trust) is that beneficial ownership of the transferred residential property must be vested in the beneficial owner(s) at the time of the transfer. An application for remission must be submitted within six months from the date of execution of the transfer instrument.
  • Buyers looking to purchase residential property for family members using a trust structure should carefully draft the terms of the trust to ensure it meets the remission conditions, if they intend to seek a refund of the ABSD (Trust) paid.

In more detail

Introduction of ABSD (Trust)

Prior to 9 May 2022, ABSD was applicable on the transfer of residential property into a living trust, at a rate depending on the profile of the beneficial owner of the transferred property. ABSD did not apply where there was no identifiable beneficial owner at the time of the transfer.

The government has announced that ABSD (Trust) of 35% will apply on any transfer of residential property into a trust, regardless of whether there is any identifiable beneficial owner, where the transfer occurs on or after 9 May 2022.

ABSD (Trust) is payable upfront upon the transfer of the residential property to the trustee. The trustee may then apply to IRAS for a remission of the amount of ABSD (Trust) paid, provided that the remission conditions are met.

The ABSD (Trust) rules do not apply to the transfer of residential property to a trustee acting in its capacity as (i) trustee for a collective investment scheme; (ii) trustee-manager for a business trust; or (iii) trustee for a housing developer. Such transfers are subject to ABSD separately.

What are the conditions for seeking remission of ABSD (Trust)?

A remission of ABSD (Trust) may be granted if all the following conditions are met:

  1. The residential property is held on trust for identifiable individual beneficiaries only;
  2. The ABSD (Trust) must have already been paid to IRAS; and
  3. The application for remission is made within six months from the date of execution of the instrument for transfer of the residential property.

An "identifiable individual beneficiary" is an individual:

  1. who is identified in the declaration of trust as a beneficiary of the residential property (whether solely or together with another), and
  2. who, because of the trust, has beneficial ownership of the residential property (whether solely or together with another) which is not revocable, variable, or subject to any condition subsequent.

This means that if beneficial ownership of the residential property has not vested in the beneficiary at the time of the transfer of the residential property (e.g., where the beneficiary is a child whose interest will only vest when he or she reaches a certain age), remission will not be available. Where the beneficiary's interest in the residential property is revocable or conditional (e.g., the beneficiary's interest will only vest if he or she graduates from university), remission will also not be available.

Where all of the remission conditions are satisfied, the amount remitted will be computed based on the difference between the ABSD (Trust) rate of 35% and the ABSD rate corresponding to the profile of the beneficial owner with the highest applicable ABSD rate.

Other related changes

On a related note, the government has also introduced the Stamp Duties (Amendment) Bill 2022 (Bill), which seeks to introduce the Additional Conveyance Duties for Trust, or ACD (Trust). ACD (Trust) will apply to qualifying transfers of equity interests in property holding entities into a trust, regardless of whether there is any identifiable beneficial owner at the time of the transfer, where the transfer occurs on or after 10 May 2022.

The Bill will also provide for stamp duty to apply where a beneficiary of a trust renounces his or her interest in residential property held under the trust, where the trust is declared over the residential property on or after 10 May 2022. ABSD and seller's stamp duty may also apply on the transfer of such renounced interest back to the settlor.

Commentary

ABSD (Trust) addresses the differential ABSD treatment that previously existed between the transfer of residential property into a trust that had no identifiable beneficial owner and a trust with identifiable beneficial owners. The introduction of ABSD (Trust) and ACD (Trust) is consistent with the government's policy intent of promoting a stable and sustainable housing market through the ABSD and ACD regime.

ABSD (Trust) will increase the cost of purchasing residential property to be held under discretionary trusts, given that no remission will be granted unless beneficial ownership of the residential property is vested in the beneficial owner(s) at the time the residential property is transferred. Buyers looking to purchase residential property for family members using a trust structure should carefully draft the terms of the trust to ensure it meets the remission conditions, if they intend to seek a refund of the ABSD (Trust) paid.

ABSD (Trust) also increases the upfront cost of transferring residential property to a trust with identifiable beneficial owner(s). Such transfers are now subject to the ABSD (Trust) rate of 35%, with a refund to be granted subsequently where applicable, whereas previously ABSD would have been payable at the ABSD rate corresponding to the profile of the beneficial owner(s). Prospective buyers should factor in this upfront cash-flow impact when considering a purchase of residential property on trust.

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