This article is contributed by SingCapital.
First published on Estate Planning Practitioners Limited’s newsletter The Custodian Issue No. 16 (pp. 8-9) on February 2021.
ABSD Rates On / After 16 December 2021
Mr Alfred Chia BSc, CFP, FChFP, ChFC, SAMP, Affiliate of STEP, IBF Fellow CEO, SingCapital Pte Ltd
The Additional Buyer’s Stamp Duty, or ABSD for short was introduced as part of the property cooling measures to bring down the heat in the red-hot property market since 2011.
Now, as we know, ABSD charges only apply to residential property and this measure has been in place since then alongside other measures to cool the market – Seller’s Stamp Duty (SSD), changes to Loan to Value, etc. To promote prudent lending and borrowing practices, the TDSR (Total Debt Servicing Ratio) Framework was introduced in 2013.
As property owners and investors are aware, the ABSD is something to be mindful of when planning the next property purchase. But what if it is in the case of inheritance? Does it apply to those on the receiving end and how will the ABSD impact property inheritance?
Here, we answer some of the questions you may have on both ABSD and property inheritance. You might wonder if beneficiaries with existing properties to their names are required to pay the ABSD to inherit another property?
The short answer is no. The ABSD would not be applicable. In the case of a direct inheritance, whether with or without a Will, the Buyer’s Stamp Duty (BSD) and ABSD would not be applicable.
But let us dive deeper and take a look at a given situation for example.
Mr. Tan is a widower with three children, and each child has a property under his/her name. He passed away without a Will and his property will be inherited equally by his children. In this case, the children can inherit the property without incurring any BSD and ABSD.
Each child would now have two properties under their names, with the inherited second property co-owned by the three of them. This will add on to their ABSD liability when they purchase additional property.
However, if two of the children wish to sell their share of the inherited property to their eldest brother, he will have to pay ABSD to buy over their share since he already owns one property.
This may not be ideal as additional taxes have to be paid. Mr. Tan could have saved his children the hassle and cost by planning his property succession. For example, Mr. Tan can assess the financial needs of his children and bequest the property to the child who needs it the most. He can then bequest cash of a similar value of the property to his two other children. He can also create the estate via insurance.
This would ensure that Mr. Tan’s legacy can be inherited by his children without any tax complication. Alternatively, he can also instruct the Executor of the Estate to sell the property and distribute the proceeds accordingly. However, if Mr. Tan wants his property to be handed down to future generations, this method may be unsuitable. Other factors such as Seller’s Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR) have to be considered as well.
With high property ownership in Singapore, it is important for property owners to strategise their property succession, to ensure that their beneficiaries can inherit the estate smoothly without incurring any additional charges in the process.
Now that you have a clear understanding of how the ABSD impacts property inheritance, you can better strategise your property succession or if you are a beneficiary, you can better plan the process smoothly among your siblings.
And alas, if you find yourself stuck in a rut even after weighing all possible options, you may need a professional’s opinion. In this case, schedule a visit with us or book a free consultation with our trusted and renowned representatives.
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