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What Is The Additional Buyer’s Stamp Duty (ABSD) “99-1 Loophole” in Singapore and Is It Illegal? (2024)

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The mark of a true blue Singaporean isn’t how well he/she can follow the law, it’s about getting around it without breaking it. But all that becomes tricky when we’re talking about tax. Case in point: Additional Buyer’s Stamp Duty (ABSD).

You may have seen ABSD mentioned in the news recently—the IRAS is clawing back a whopping $60 million from private property investors who tried to avoid paying it. How did they do it? They made use of the “99-to-1” arrangement, under which 1 co-owner owns 99% of a property’s shares while the other owns the remaining 1% of shares.

Of course, simply splitting shares in a 99:1 ratio doesn’t make one immune to ABSD. There’s more to the story here. How does the loophole work? More importantly (and especially in light of the recent IRAS claw back), could it land you in any trouble?

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First up, what is ABSD? 

ABSD is a hefty tax that gets slapped on any Singapore citizen buying a second or subsequent residential property.

All Permanent Residents (PRs) and foreigners have to pay ABSD on all residential property purchases, including a first home.

Here are the current ABSD rates for individuals purchasing property in Singapore:

Buyer

Residential property being purchased

ABSD rates (16 Dec 2021-26 Apr 2023)

ABSD rates (on or after 27 Apr 2023)

Singapore Citizen

1st

NA

0%

2nd

17%

20%

3rd and subsequent

25%

30%

Singapore PR

1st

5%

5%

2nd

25%

30%

3rd and subsequent

30%

35%

Foreigner

Any

30%

60%

Entities

Any

35%

65%

Housing developers

Any

35% + 5%  (non-remittable)

35% + 5%  (non-remittable)

Trustees

Any

35% (wef 9 May 2022)

65%

ABSD has gone up, up and up.

The Singapore government has been implementing property cooling measures over the years to make it more difficult for Singapore residents to buy an investment property. In other words, the ABSD has just kept going up.

  • In 2021, ABSD for Singaporeans buying a second property was increased from 12% to 17%. Third or subsequent properties rose from 15% to 25%.

  • On 26 April 2023, the government announced another bump in ABSD—the steepest increase to date.

  • From 27 April 2023, foreigners buying any residential property in Singapore have to pay an ABSD of 60% after it was doubled from 30%. Singaporeans buying their second residential property will have to pay an ABSD rate of 20%, up from 17%. Those buying their third and subsequent residential property will have to pay an increased rate of 30%, up from 25%.

At this point, cooling measures are a matter of when, not if. It’s no wonder some Singaporeans buying a second property have tried hard to find a loophole to escape ABSD—such as the 99-1 scheme.

 

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So, what is this “99-1 loophole”? 

Let’s say 2 people, Amy and Bernard, found their dream house and decide to buy it. Amy is a Singaporean who does not own any property, so she doesn’t need to pay any ABSD. On the other hand, Bernard already owns 1 property and is subject to an ABSD of 20% on his second property.

Their goal is to co-own their dream house. But there’s more than 1 way to get there.

Method 1—Buy the house together (not questionable)

The most straightforward thing to do is simply buy the house together. Amy and Bernard are co-owners from the get-go and pay 20% ABSD on the full property price—when 2 or more people buy a property together, the highest ABSD profile will apply to the entire property price. In this case, that’s Bernard’s 20% ABSD.

If we assume the property costs $1 million, Amy and Bernard pay an ABSD of $200,000.

IRAS has no problem with this purchase.

Method 2—The 99-1 scheme (questionable)

But if Amy and Bernard want to reduce the ABSD they have to pay, they might try a 2-step method that eventually allows them to co-own their house:

  1. Amy buys 100% of the property. Since this is her first property, she doesn’t pay any ABSD.

  2. Amy then sells 1% of the property to Bernard. Since this is his second property, he pays 20% ABSD—but the 20% applies only to 1% of the property value ($10,000). This means the ABSD due is only $2,000.

Because of the ratio of shares owned and transferred, this process has become known as the “99-1 loophole”.

While not technically illegal, IRAS definitely raises an eyebrow at this and may investigate such cases. If they think you split up a property purchase just to avoid ABSD, they might treat your purchase as a single joint purchase (a.k.a. Method 1) and tax you the full amount with a penalty.

The 99-1 loophole—Why transfer the 1%?

You might be wondering, why should Amy transfer 1% to Bernard anyway? Practically speaking, can’t they still live there together while she owns the house on paper?

One reason has to do with home loans. If Amy is buying a property by herself, the bank will assess her loan eligibility based on only her income.

But 2 persons’ incomes are larger than one’s. So, after she exercises the purchase option, Amy can bring in Bernard so that the bank assesses a larger joint income and lets them take a larger loan. That means their downpayment is reduced too.

 

Is the 99-1 loophole illegal?

Playing around with the 99-1 share ratios with the intention of avoiding ABSD can be considered a form of tax avoidance. While not a crime, tax avoidance can get you fined—you could be slapped with a 50% penalty, as we’ll talk more about below.

In short, your wallet will cry, but at least you won’t be a criminal.

To be clear, tax avoidance and tax evasion are not the same thing. Tax avoidance involves using legal loopholes (like the 99-1 loophole) to pay less tax, while tax evasion is illegally cheating (e.g. by underreporting income) to avoid paying taxes. The former works around the rules, while the latter outright breaks them and is considered a criminal offence.

 

Why is everyone talking about the 99-1 scheme now?

Singaporeans have been doing this under the radar for a while, but it’s only recently that chatter around the 99-1 loophole has gotten louder. Why? Well, the government got wind of it and has started to investigate. In 2023, IRAS began probing 99-1 property scheme cases to suss out whether home buyers were just using it to avoid paying their ABSD.

In May 2024, the IRAS reviewed 187 such cases and found 166 to have involved ABSD avoidance. They’re clawing back $60 million in recovering the ABSD that was supposed to be paid to them.

You do not want to be among those numbers. If caught, you could be forced not only to pay the amount of ABSD owing, but also be slapped with a 50% penalty.

In the case of a couple who tries to save $200,000 on ABSD when buying a $1 million property, they would end up having to pay $300,000. Ouch.

 

When are 99-1 transactions allowed by IRAS?

Are there situations in which you can buy property with a 99-1 structure without your acts being construed as tax avoidance? Actually, yes.

If you have a bona fide commercial reason, it is considered acceptable by IRAS and you won’t get fined. In other words, there has to be a good reason to do it that does not involve avoiding ABSD.

For instance, let’s say you and your business partner decide to buy a property together. In that case, you might split the property 99-to-1 based on how much each of you is prepared to invest.

But a word of warning: At the end of the day, you don’t have the final say when it comes to how much ABSD you have to pay.

This is especially so in tricky 99-1 arrangements where buyers reduce the amount of tax they have to pay by splitting up a property purchase into several steps. As current Deputy Prime Minister and Minister for Finance Lawrence Wong said, in such situations the Commissioner of Stamp Duties is empowered under Section 33A of the Stamp Duties Act to “disregard the individual transactions and assess them as a single joint purchase”.

 

How are authorities clamping down on the 99-1 scheme?

IRAS is investigating suspicious-looking transactions involving a 99-1 structure of property holding. Anyone found guilty will be slapped with a bill for unpaid ABSD as well as a 50% penalty.

This is a big sum, so some property owners might find it difficult to cough up the ABSD and penalty in time. If not paid by the deadline, IRAS can impose penalties of up to four times the amount owing. Yikes.

IRAS is very serious about sussing out all tax avoidance transactions. They’re even rewarding whistleblowers up to $100,000 for informing them of any such cases.

Is the 99-1 scheme the same as decoupling?

Decoupling may be involved in a version of the 99-1 scheme (yes, there’s more than one way it can be used). But decoupling and the 99-1 scheme that IRAS is cracking down on are not the same thing. I described the questionable 99-1 scheme in a previous section, so here I’ll explain decoupling.

This is what decoupling typically looks like:

Carina and Darrell are buying their first home together. When they buy their first property, they make it such that Carina gets a 99% share of the property, while Darrell receives a mere 1% share. They’re still buying the property as a couple, so they have the advantage of 2 incomes when applying for a home loan.

When they find a second investment property they want to buy, Darrell transfers his 1% share to Carina, who has the 99% share. As the share being transferred is only 1%, the Buyer’s Stamp Duty (BSD) they have to pay is minimal.

Once the transfer is complete, Carina will hold 100% of the first property, while Darrell holds nothing. He is then able to buy the second property without paying ABSD since he doesn’t officially own any other residential properties.

 

Is decoupling illegal?

In Carina and Darrell’s case, we once again see a 99-1 structure. We once again see how it can be used to avoid ABSD, albeit in a different way. That sounds familiar, doesn’t it? Aren’t those also the makings of the 99-1 scheme? In that case…would IRAS penalise Carina and Darrell too?

First of all, decoupling is not considered a crime regardless of why it is engaged in. Provided there has been no lying or cheating involved, it should not be considered a form of fraud or tax evasion, which could get you slapped with criminal charges.

Currently, IRAS is looking out for “buyers who have entered into a 99-to-1 scheme in which the 1 per cent stake is sold immediately after the purchase option is exercised”. Typically in these suspicious cases, the person who receives the 1% already owns a first property—like Bernard in the previous section. So at least for now, Carina and Darrell’s case doesn’t fall under the type of 99-1 arrangements that IRAS is investigating.

 

How much can you save through decoupling?

ABSD rates start at 20% for Singapore citizens buying a second residential property. That’s 20% of the property price, which is massive. If you’re buying a $1 million condo unit, that’s a massive $200,000 in ABSD fees!

Do note that decoupling seldom involves HDB flats as transfers of HDB property between owners is more restrictive and subject to HDB’s approval based on the prevailing eligibility conditions at the point of application. These conditions include a change in the existing family structure (such as divorce, marriage or demise of an owner), or the current owners need to perform an ownership change to retain the flat.

Although the prospect of avoiding ABSD can be very tempting, it might not save you as much as you think since decoupling itself requires you to incur certain costs.

When decoupling, you will likely need to refinance your home loan for your first property in the name of the spouse who is receiving the 100% share. What’s more, the spouse relinquishing his or her 1% will have to refund any CPF savings that were used. You’ll also have to factor in legal fees and stamp duties incurred in the transfer of the 1%.

Here are the costs to take note of:

  • Home loan prepayment penalties

  • Legal fees

  • BSD

  • Seller’s Stamp Duty (SSD) if first property was bought less than 3 years ago

  • CPF—if CPF savings were used to purchase first property, they must be refunded with interest

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Oops, I’ve done something similar (or I’m in the process of doing so). Who should I consult to make sure I’m doing the right thing?

Buying a property together with someone else and not sure whether what you’re doing will get you into trouble? Your lawyer should be able to advise. As a general rule, you must be able to supply IRAS with a bona fide commercial reason for buying the property with such a shareholding structure.

For those who have already purchased a property using a 99-to-1 structure and are worried IRAS will come after them, the government is now encouraging people to come forward and make a voluntary disclosure. If you do so, IRAS is likely to look at your case more favourably.

IRAS has also stated that “there is no time bar for stamp duties, and IRAS can conduct audits on any past stamp duty cases and transactions.” In other words, no one is safe no matter how long ago you bought your house.

Those who come forward will most likely be made to pay the full ABSD sum, but IRAS has kept silent as to whether the 50% penalty will be imposed on those who make voluntary disclosures.

If you are aware of any person who has entered into such tax avoidance arrangements, you may choose to write to IRAS at estamp@iras.gov.sg. Your identity, along with all information and documents provided by you will be kept strictly confidential.

 

Do you know someone who’s planning to invest in property in Singapore? Share this article with them. 

 

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