New ABSD on trusts levels playing field: analysts

by Albert02

New ABSD on trusts levels playing field: analysts

New ABSD on trusts levels playing field: analysts. Analysts say the proposal to impose an Additional Buyer’s Stamp Duty (ABSD) to residential properties transferred into a living trust fills a loophole in the ABSD regime while also leveling the playing field.

However, analysts point out that because trust houses must be paid for in whole in cash, few buyers choose for them, and as a result, the impact on the larger residential market is considered minor.

The Ministry of Finance (MOF) announced late Sunday night that, beginning May 9, an ABSD of 35% will be applied on any transfer of residential property into a living trust. “ABSD (Trust) resolves and closes the prior loophole in the ABSD regime, by imposing ABSD on transfers of residential property into living trusts, even when there is no known beneficial owner,” a MOF spokesperson said on Monday.

Previously, ABSD was paid or not paid depending on the profile of the beneficial owner of the residential property transferred into the trust. ABSD did not apply if the living trust was formed so that there was no identified beneficial owner at the time of transfer.

Dr. Lee Nai Jia, deputy director of NUS’ Institute of Real Estate and Urban Studies (IREUS), believes the government is attempting to discourage buyers from utilizing a living trust as a loophole to acquire properties while deferring payment of ABSD for an extended period of time. “While the number of such transactions should be minimal because (buyers) cannot borrow for the purchase,” Dr. Lee explained, “the quantum is considerable because properties transacted through trust are of higher quantum.”

“Many wealthy individuals are interested in buying a home for their children for estate planning purposes,” said Huttons senior director of research Lee Sze Teck, who described the new ABSD (Trust) as a type of wealth tax.

“In times of market uncertainty and abundant liquidity, more funds will be allocated to physical assets, such as properties in safe havens,” Lee explained. “Because Singapore is often considered as a safe haven, additional funds may flow into property in the months ahead.”

Meanwhile, the government is “expanding the scope of application of ABSD” from individuals and entities to now include living trusts, according to Lim Maan Huey, real estate and hospitality tax leader at PwC Singapore. This is in line with the government’s policy of keeping residential property affordable.

According to Karamjit Singh, CEO of consultancy Delasa, in the situation of a trust where the beneficiary is clearly recognized and the transfer of beneficial interest is unconditional, the trustee must now pay the ABSD of 35% of the property’s purchase price before applying for a refund.

While the ABSD must be paid in full at the time of the transfer, a trustee may apply for a refund of the ABSD (Trust) if certain conditions are met, including that all beneficial owners are identified, that beneficial ownership has been vested in all of them, and that it cannot be revoked, varied, or subject to subsequent conditions.

“The impact of ABSD (Trust) on most normal trust transactions tends to be a cashflow issue, not a cost issue,” Singh added. Given that such trust acquisitions are typically made by well-heeled families that pay in full cash, the cash flow of 35% may not be too much of a disincentive because ABSD savings are normally substantial.

A trust could be structured in such a way that the beneficiary must meet certain criteria, such as turning 21 years old, before being entitled to the property’s interest, or a purchase could be made with a grandparent as beneficiary on the condition that the property is willed back to the trustee who funded it, Singh continued. The trustee is not entitled to an ABSD return in this situation since the beneficiary is not identifiable.

However, because such situations of “trust acquisitions with constraints tied to the vesting of beneficial interest” are uncommon, Singh believes ABSD (Trust) will have little impact on the broader residential market i.e. when buyers look at buying a unit in the upcoming new launch at Lentor Modern“While it is the desire of parents to leave an advance legacy for their children, some have complained that this carries the risk of worsening the state of inequality,” said Lam Chern Woon, head of research and consultation at Edmund Tie. The writing was on the wall for the creation of such trusts, based on how the government has been modifying the rules to create a more inclusive and equitable society.”

However, Lam emphasized that the authorities are not restricting legacy planning because unconditional and irrevocable trusts are still eligible for an ABSD (Trust) reimbursement.

The reimbursement application must be submitted to the Singapore Inland Revenue Authority within 6 months of the instrument’s execution. The reimbursement amount will be determined by the difference between the ABSD (Trust) rate of 35% and the ABSD rate applicable to the beneficial owner’s profile with the highest ABSD rate.


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