How to avoid paying ABSD LEGALLY in Singapore
You’ve just made the deal of your lifetime and you’ve landed on a sizeable amount of cash. Being a wise property investor, you decide to invest the extra money in a second property. Just then, you realise that you may be liable for Additional Buyer’s Stamp Duty, commonly known as ABSD.
ABSD and what it means
Additional Buyer’s Stamp Duty (ABSD) was introduced in December 2011 by the Singapore government. This was to curb speculative buying in the property market. It was further raised in 2018 because the Singapore government believes that property prices have risen much faster than economic growth. If you are a Singaporean citizen buying a second property, tragedy! You are liable to pay a whopping additional 12% of the property’s price on top of the baseline Buyer’s Stamp Duty. However, there are some legal ways that you can use to avoid paying ABSD and I will be glad to share them with you today.
1. Through a trust
Firstly, if you are lucky enough to have children below 21 years old, you can buy your second property through a trust. Thereafter, list one of your children as the beneficiary, and you the trustee. This means that ABSD would not need to apply to this property since it’s a first property. However, it also means that the property legally belongs to your child. You are merely taking care of it until he or she meets the age requirement specified in the trust. This may potentially create future conflicts, so you have to be mindful of the potential consequences! In addition, no banks will grant mortgage to a child. You will most likely have to pay for the property with full cash. Good thing you made that sizeable amount of money earlier!
2. By decoupling
Secondly, if your current property is owned jointly with your partner, you can consider decoupling to avoid paying ABSD. This means that one of you will transfer the full ownership of your current property to the other. This can either be done by the way of a gift, or by selling your share to your partner. However, this may also create potential conflicts. One of you will have to legally own a lower valued property than the other. This is of course unless you and your partner can have unwavering trust in each other. If that is indeed the case, I am very happy for you.
3. Purchase under different names
Lastly, if your current property was purchased solely under your name, simply buy your second property under your partner’s name. Since this would technically be your partner’s first property purchase, your partner would not be liable to pay ABSD for the new property. As with the previous two approaches, this may also create potential complications in the event of a divorce or death.
HDB flats’ restrictions
As a final add-on, some of these measures may not work if your current property is a HDB flat because HDB flats are subjected to much more restrictions. For example, decoupling of HDB flats has been disallowed since 2016.
In a nutshell, these are ways that you can potentially avoid paying ABSD. You will have to carefully decide if the money saved on ABSD outweighs the likelihood and the severity of the potential implications that have been mentioned. I hope that you’ve gained some useful insights, and that’s it for today! This is Isaac, keeping property real for you!
If you’re buying your second property, decide if it’s better for leasehold or freehold by checking out our analysis!