ABSD Requirements when Transferring Residential Property into a Living Trust
This article discusses overview of ABSD rules, and the recent changes to ABSD rules for transferring residential property into a living trust, when ABSD has to be paid, and how to get a refund from IRAS (partial/full, eligibility, and deadling)
There has been a lot of talk in the news lately about the government changing the rules governing the Additional Buyer’s Stamp Duty (ABSD) in Singapore. Like most people, you probably found these reports confusing, wondering how these new rules might affect you. If so, you can stop worrying because this article will explain these rules changes, so that you can determine their impact on you, if any.
At first glance, the primary change is that an ABSD of 65% is due when transferring residential property into a living trust. To give you a full understanding of the implications, this article will explain the following:
Table of Contents
Overview of ABSD Rules in Singapore
What are the current ABSD rates?
When does the ABSD have to be paid?
How will the refund be calculated?
What is the deadline for submitting a refund application?
Overview of ABSD Rules in Singapore
Stamp duties must be paid to the government upon the purchase of residential property in Singapore. This is essentially a tax involving immovable property, which is what real estate is. When residential property is transferred the transaction must be officially registered for it to be legal. The registration document showing that the Stamp Duties has been paid serves as evidence of the property transfer.
In Singapore, there is a requirement that both buyer and seller pay stamp duties on a property transaction. Regarding the buyer, there are two types of stamp duties that he/she may have to pay:
- Buyer’s Stamp Duty (BSD): The tax that the government levies on property purchases.
- Additional Buyer’s Stamp Duty (ABSD): This is an added tax the government levies on residential property purchases depending on residency status of the buyer and number of properties currently owned by the purchaser at the time of purchase.
This article is about the ABSD that property buyers are required to pay. Prior to the changes made recently, buyers were only required to pay ABSD when they bought residential property under the following conditions:
- Whether or not the buyer was an individual person or an entity (e.g. an unincorporated organisation or partners in a partnership).
- The profile status of the buyer: Singapore Citizen, Singapore Permanent Resident (SPR), or foreigner.
- How many residential properties the buyer already owns, and this includes those beneficially owned.
But now there’s another factor that must be considered, and that has to do with whether the residential property buyer wants the property to be held in a living trust.
Purpose of a Living Trust
A trust is basically a legal agreement between parties for the purpose of smoothly transferring an asset after a death. These assets can be personal assets like stocks and bonds, as well as real estate. There are three parties involved in this legal arrangement, which are the following:
- Trustor: The individual who originally has the asset and wants to transfer it.
- Beneficiary: The individual who is slated to receive the asset when the trustor dies.
- Trustee: The individual being given responsibility for managing the asset on behalf of the beneficiary. Asset management involves things like investing the assets to enhance value, keeping track of relevant expenses, etc. Managing an asset like a residential property would involve regular maintenance, renting it out, and investing the rental income, etc.
The trustor is allowed to also be the trustee. So, if someone executes a “declaration of trust” that says that he/she is holding a piece of property on trust on behalf of someone else, he/she would essentially be the trustor as well as the trustee.
The reason a trust is labelled as “living” is because it’s formed when the trustor is still alive. This is different from a trust created as part of a will. These only go into effect once the trustor is deceased.
To create a trust, a trust deed must be executed. This is a written document that spells out an arrangement whereby the trustor and trustee agree that the trustee is receiving the property for the purpose of holding it on trust for the stated beneficiary.
Before transferring the asset, the trustor is both legally and beneficially the owner of the asset, in this case the property. The legal owner is the person who is registered on paper under the Land Titles Registry. The beneficial owner is the one entitled to receive the benefits of the property.
But, while forming the trust, these two types of ownership are divided between both parties, as follows:
- The trustee maintains legal ownership of the asset, and
- The beneficiary maintains beneficial ownership of the asset.
To explain how transferring property into a living trust would work, we’ll discuss the following family situation:
A grandfather wants to have ownership of his home transferred to his grandson when he dies. He can set this up while he’s still alive by transferring the home into a living trust. To do this he would appoint a trustee to manage this asset for the benefit of his grandson for the rest of the grandfather’s life. This is most commonly arranged by the grandfather buying the property, then executing a “declaration of trust” that says that he will be holding the home on trust for the benefit of his grandson.
By doing this, legal ownership of the home is vested in the grandfather while beneficial ownership is vested in his grandson. But when granddad passes away, his grandson will receive legal ownership of the home as well as beneficial ownership.
ABSD Rules for a Living Trust
When is ABSD Due?
As of 27 April 2023, an ABSD is due on any residential property being transferred into a living trust.
This applies in both of the following situations:
- When the beneficial owner(s) is identifiable when the property is being transferred into the living trust.
- When the beneficial owner(s) is not identifiable when the property is being transferred into the living trust.
There would be no identifiable beneficial owner of the property being held in a living trust if the beneficiary has yet to be born when the declaration of trust is executed. This would also be the case if the beneficiary has yet to fulfil the required conditions that would entitle him/her to obtain an interest in the property.
Here are some possible conditions:
- The beneficiary must get married by a specified age.
- The beneficiary must graduate from college.
- The beneficiary turns 21 years of age.
In these examples, no beneficial owner would be identified on the declaration of trust document because at the time of the transfer of property, the conditions had not yet been fulfilled. Therefore, the proposed beneficiary is not yet identifiable.
Now that the rules have changed, ABSD is due in those situations. The purpose of the rule change is to create a more stable and sustainable market in the residential sector, by plugging this loophole.
What are the current ABSD rates?
The current ABSD rates (with effect from 27 April 2023) from are stated in the following table:
| Profile of Buyer | ABSD Rates |
| Singapore Citizens (SC) buying first residential property | 0% |
| SC buying second residential property | 20% |
| SC buying third and subsequent residential property | 30% |
| Singapore Permanent Residents (SPR) buying first residential property | 5% |
| SPR buying second residential property | 30% |
| SPR buying third and subsequent residential property | 35% |
| Foreigners (FR) buying any residential property | 60% |
| Entities buying any residential property (plus additional 5% for housing developers, non-remittable) | 65% |
| Trustee buying any residential property | 65% |
When does the ABSD have to be paid?
The ABSD must be paid upfront, which means right when the transfer is taking place for the residential property to be held in a living trust.
Also, you need to know that the one buying the property (who would become the trustee) is the one required to pay the ABSD.
How to Get an ABSD Refunded
A trustee is allowed to apply to have an ABSD refunded after paying it when they transferred a residential property into a living trust. However, they can only do this if certain conditions have been met. Basically, the main requirement is for the property to have one or more identifiable beneficiaries. And if it does the trustee may be entitled to a partial or full refund of the 35% he/she paid in ABSD.
Under what conditions can a trustee apply for an ABSD refund?
These are the conditions that have to be met before a trustee is allowed to apply to IRAS to see if they can get their ABSD refunded:
- All beneficiaries of the residential property must be identifiable.
- At the time the residential property is being transferred into the trust, beneficial ownership has already been given over to the beneficial owners.
- Beneficial ownership is not allowed to be revoked or varied for any reason or subjected to subsequent conditions spelled out in the terms of the trust. For example, a subsequent condition that keeps the beneficial owner from selling the property, or a condition that keeps the beneficial owner from transferring the property to their spouse.
How will the refund be calculated?
How much the refund will be is calculated by determining the difference between the 65% ABSD paid and what is actually owed. This is based the status of the beneficial owner(s) of the property transferred.
Using the example above of a grandfather wanting to transfer a home into a living trust in which the beneficiary is his grandson: If his grandson is a Singapore Citizen who owns one residential property in his name before the transfer, he would be categorized as a “Singapore Citizen buying a second residential property” according to the table above. The ABSD rate that would apply would be 20%. In calculating the actual amount owed we would take 65% - 20% = 45%. This means that a partial ABSD refund would be paid.
On the other hand, if the Singapore Citizen grandson did not own any residential property in his name before the transfer, he would not owe any ABSD on the transaction. Therefore, the full amount of 65% would be refunded.
What is the deadline for submitting a refund application?
The refund application must be submitted within six months of the transfer date. The trustee can use their SingPass using the e-Stamping Portal.
Once the trustee has submitted all the information required, it takes two months to process the application. Once the application is approved, the money will be refunded within a month. If you would like more details on applying for a refund, you can refer to this IRAS website.
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If you are planning to transfer a residential property that you own into a living trust, it’s important that you understand the recent changes that were made to the rules governing ABSD when property is transferred into a living trust.
It would be wise to consult with a lawyer who specialises in estate planning and setting up trusts. This lawyer can help you prepare the trust deed and advise you on how to comply with the requirements needed to transfer your property into the trust, including paying the ABSD in accordance with the new rules.
Your lawyer will also let you know if you meet the conditions for an ABSD refund. He/she can also help you prepare the documents that must be submitted with your refund application. We can certainly recommend a qualified conveyancing lawyer specialises in setting up living trusts.
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