New ABSD On Trusts Levels Playing Field: Analysts

May 11, 2022

The move to apply an Additional Buyer’s Stamp Duty (ABSD) to residential properties transferred into a living trust plugs a gap in the ABSD regime, while levelling the playing field to make things more equitable, analysts said. Credit: Bloomberg

The move to apply an Additional Buyer’s Stamp Duty (ABSD) to residential properties transferred into a living trust plugs a gap in the ABSD regime, while levelling the playing field to make things more equitable, analysts said.

However, analysts also highlighted that not many buyers purchase properties under a trust - as it has to be paid for fully in cash - and as a result, the impact on the broader residential market is seen to be insignificant.

In an announcement late on Sunday night, the Ministry of Finance (MOF) said that an ABSD of 35 per cent will be imposed on any transfer of residential property into a living trust, effective from May 9. A spokesperson for MOF said on Monday: “ABSD (Trust) addresses and closes the earlier gap in the ABSD regime, by applying ABSD on transfers of residential property into living trusts, even when there is no identifiable beneficial owner.”

Previously, ABSD may or may not be payable upon the transfer, depending on the profile of the beneficial owner of the residential property transferred into the trust. If the living trust is structured such that there is no identifiable beneficial owner at the time of transfer, ABSD did not apply.

Dr Lee Nai Jia, deputy director of NUS’ Institute of Real Estate and Urban Studies (IREUS), reckons that the government may be trying to prevent buyers from using a living trust as a loophole to acquire properties while delaying the payment of ABSD for a long time. Dr Lee said: “While the number of such transactions should be low as (buyers) cannot borrow for the purchase, the quantum is significant as the properties transacted through trust are of higher quantum.”

Huttons’ senior director of research Lee Sze Teck, who described the new ABSD (Trust) as a form of wealth tax, said: “Many wealthy individuals are interested to buy a property for their children for estate planning purposes.”

“In times of uncertainty and ample liquidity in the market, more monies will be allocated to physical assets, such as properties in safe havens,” Lee said. “Singapore is widely regarded as a safe haven, hence more monies may flow into properties in the coming months.”

Meanwhile, Lim Maan Huey, real estate and hospitality tax leader at PwC Singapore, noted that the government is “extending the scope of application of ABSD” from individual and entities previously to now include living trusts, in line with its policy of ensuring that residential property remains affordable.

According to Karamjit Singh, chief executive of consultancy Delasa, in the case of a trust where the beneficiary is clearly identified and the transfer of beneficial interest is unconditional, the trustee will now have to pay the ABSD of 35 per cent of the purchase price of the property before applying for a refund.

While the ABSD has to be paid upfront when the transfer is made, a trustee may apply for a refund of 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.

Singh said: “The impact of ABSD (Trust) on most typical purchases by trusts tends to be a cashflow issue, not a cost issue. Bearing in mind that such trust purchases are usually made by well-heeled families paying fully in cash, the cash flow of 35 per cent may not be too much of a deterrent as the savings of ABSD tends to be significant.”

However, a trust could also be structured in a way where the beneficiary needs to fulfill certain conditions, such as turning 21 years old, before being entitled to the interest in the property, or a purchase could be made with a grandparent as beneficiary on condition the property is willed back to the trustee funding it, Singh went on to highlight. In such a case where the beneficiary is not regarded as identifiable, the trustee is not entitled to an ABSD refund.

However, such cases, where “trust purchases are made with conditions attached to the vesting of beneficial interest” are not common so ABSD (Trust) isn’t expected to have much of an impact on the broader residential market, Singh added.

Lam Chern Woon, head of research & consultancy at Edmund Tie, said: “While it is the intention of parents to leave an advance legacy for their children, some have bemoaned that this runs the risk of exacerbating the state of inequality. Going by how the government has been tweaking the rules to create a more inclusive and fair society, the writing was on the wall on the creation of such trusts.”

Lam also stressed, however, that the authorities are not curbing legacy planning since unconditional and irrevocable trusts can still apply for an ABSD (Trust) refund.

The application for the refund must be made to the Inland Revenue Authority of Singapore within 6 months from the execution of the instrument. The refund amount will be based on the difference between the ABSD (Trust) rate of 35 per cent and the ABSD rate corresponding to the profile of the beneficial owner with the highest applicable ABSD rate.

Credit: Business Times

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