New rule hits those who buy homes via trusts to avoid ABSD

by Albert02

New rule hits those who buy homes via trusts to avoid ABSD

New rule hits those who buy homes via trusts to avoid ABSD. Cash-rich buyers who have been avoiding extra buyer’s stamp duty (ABSD) laws by purchasing residential properties through revocable or conditional trusts may no longer be able to do so.

This follows the implementation of a new regulation on Monday (May 9) that imposes a 35% ABSD on residential property transfers into living trusts.

A living trust is established throughout a person’s lifetime. It’s a legal document that appoints a trustee to manage the assets of a named individual for the benefit of the beneficiary.

The new legislation “seeks to fill a loophole used by people who do not create a true trust for a real, identifiable beneficiary, or who create conditional or revocable trusts,” according to Mr Lee Liat Yeang, senior partner at Dentons Rodyk’s corporate real estate practice.

He said: “This is to avoid a situation in which the recipient does not become the true owner of the property in the case of a new purchase in AMO Residence. The property is actually owned by the trust’s creator, who is attempting to avoid paying ABSD by not purchasing it in his own name.”

When a residential property is transferred into a living trust, buyer’s stamp duty is due under existing legislation. ABSD may be due depending on the beneficial owner’s profile.

When there was no known beneficial owner when the property was transferred previously, ABSD did not apply.

The Ministry of Finance (MOF) stated that starting of May 9, ABSD (Trust) is payable even if there is no traceable beneficial owner.

Furthermore, equity interests in residential property holding corporations that are transferred into living trusts on or after May 10 will be subject to additional conveyance duties (ACD Trust), even if there is no traceable beneficial owner, according to the MOF.

Mr Lee said that the ACD (Trust) is a stamp duty imposed on the transfer of shares in a company that owns residential property (which accounts for at least 50% of the company’s total tangible assets).

Mr. Karamjit Singh, CEO of property investment sales firm Delasa, pointed out that the new rule compels the trustee to pay an ABSD (Trust) of 35% of the purchase price when exercising the option to acquire before requesting a refund.

If certain conditions are met, a trustee may request for a refund of the ABSD (Trust), including that all beneficial owners are identified, that beneficial ownership has been vested in all of them, and that it cannot be revoked, altered, or subject to further circumstances. The application must be submitted within six months of the execution of the instrument.

According to Mr Singh, there may be occasions where the trustee is not entitled to a refund under the new rule.

For example, a trust deed could be constructed so that “the beneficiary must meet specific conditions before being entitled to the interest in the property, such as getting married by a particular age, turning 21 or graduating from university.”

Mr Singh explained: “The recipient is not considered identifiable due to the unfulfilled requirements attached. The trustee would not be entitled to a reimbursement in these situations.”

New rule hits? Nonetheless, the new law is unlikely to have a significant impact on the market because properties purchased through a trust must be paid for entirely in cash, which most individuals cannot afford, according to OrangeTee & Tie CEO Steven Tan. This is likely the case for buyers who may be buyng future new developments like AMO Residence. “We do not have statistics on transfers of residential property into trusts when ABSD was not applicable,” MOF stated when questioned. “The Government may be anticipating more foreign cash coming to invest in Singapore, including in the real estate market,” said Mr Nicholas Mak, head of research at ERA Realty Network.

According to Mr Mak, certain high-net-worth individuals or family offices may employ intricate multi-layer ownership structures to conceal genuine ownership of certain assets.

“A living trust’s beneficial owner could, for example, be another trust, and the second trust’s owner could be a third trust. High-net-worth individuals typically use these arrangements to acquire or transfer extremely valuable real estate “he noted.

New rule hits? The Ministry of Finance further stated that stamp duty is due on the renunciation of an interest in a residential property held on trust, and the beneficiary must notify the Commissioner of Stamp Duties within a certain time frame or face a punishment.

“If a person established a residential property trust and the beneficiary later relinquished his stake in the trust, the property’s rights revert to the person who established the trust. And this individual will be responsible for all stamp duties, including ABSD “Mr. Lee explained.

Click the image to read the full details of report or at this link:
https://www.straitstimes.com/business/property/new-rule-plugs-loophole-of-buying-residential-property-via-trusts-to-avoid-absd

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