I have two children, 4 and 7 and we currently live in a condominium. My wife and I are thinking of buying a terrace house without selling the condominium as it is freehold and near an upcoming MRT station, its value will go increase astronomically in the future. Can I set up a trust in my older son’s name and transfer ownership of my condominium to him so I can be exempt from paying the ABSD of 10% for my purchase of a landed property? Thanks for your time and attention!
Micheal Yeo C S
Thanks for your email. This is a question I have explored myself since the ABSD was increased to 7% for second time buyers and 10% for third time buyers in 2013.
When I consulted my lawyer on the idea of setting up a trust to circumvent the ABSD, his immediate response was:
“Do you think you can fool IRAS so easily? If they find out years later when you sold the property that you bought it to avoid ABSD, they will charge you the ABSD on top of the penalties for avoiding taxes! You can even go to jail in the worst case scenario!”
There are only two things certain in life – taxes and death and in Singapore, I would say it is impossible to escape paying your due share of stamp duty if that is what you intend to do.
The process of setting up a property trust is pretty onerous and you need to consult a lawyer experienced in this field to help you set one up.
As no banks will lend a trust a property loan, you have to first pay off the remaining mortgage of your condominium before you can transfer it to your son.
Once the property is in your son’s name, it cannot be revoked as it is considered as your gift or bequest to him. Any rental you collect from the condominium will go into the trust and can only be used for its maintenance. You cannot use it for any other purposes. You cannot sell the property either even when you need the money urgently as it is no longer yours – it is now owned by the trust on behalf of your son. You cannot sell off a property which is not legally yours, can you?
Unless specified, the trust will automatically end when your son reaches the age of 21 and the condominium will be transferred legally to his name. He will then be able to make a decision on what to do with it. You can specify in the trust the length of time after which it will end, but ultimately the ownership must be transferred to your son.
However, setting up a property trust for an existing property under your ownership is risky as IRAS will view it as a blatant attempt to avoid paying the ABSD.
An alternative is to set up the property trust to purchase a property for your son and to write in to IRAS first to explain the rationale behind the setting up of the trust, i.e. to pay for your son’s tuition fees when he enter University and to seek their approval first.
There are many property agents out there who claim they know of lawyers who are able to set up a property trust to help you circumvent the ABSD. My personal take is that it is not worth taking the risk because the penalties are very severe and far outweigh the savings from not paying the ABSD. I can refer my lawyer to you if you need further legal advice on this matter.
With warm regards,
This reply should not be misconstrued as legal advice. Please consult your lawyer for further clarification and action.
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About the Author
Joe is a property enthusiast who bought his first property in Singapore at the age of 26 in 2005. From 2005 to 2015, he built a portfolio of 6 private properties in Singapore and has since sold three of them realizing a net profit of between 60 to 100 percent. He made his first million dollars in property investing at the age of 30 and has now amassed a property portfolio in Singapore, Australia and Malaysia worth more than $10 million dollars.
Joe is a conservative long-term property investor who believes in life-long learning and education in property investing. He does not claim to be a property expert or guru, but rather an adventurer who is in the middle of an exciting journey to achieve financial freedom from his property investments.
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