ABSD (Trust) Update 9th May 2022: Purchasing Property On Trust For Your Child In Singapore

absd trust singapore
With the introduction of ABSD levied on residential property transfers into living trusts, it is important for individuals keen on purchasing a property and holding it on trust for their minor children to understand how they can qualify for remission of ABSD (Trust), as well as the legal and tax implications of holding the property on trust.

To circumvent the increasing costs of investing in residential properties, some individuals choose to set up trusts to hold residential properties for the benefit of their children.

With the introduction of ABSD levied on residential property transfers into living trusts, it is important to understand how to qualify for remission of ABSD as well as the implications of purchasing a property via a trust.

What is ABSD (Trust)?

Transfers of residential property into a living trust on or after 9 May 2022 will be subject to Additional Buyer’s Stamp Duty (ABSD) of 35%.

A living trust is one created by the settlor during his or her lifetime by executing a trust deed with the transfer of assets to the trustee. When a property is purchased through a trust arrangement, the trustee is responsible for managing the property held in trust for the benefit of the minor beneficiary.

ABSD of 35% is to be payable upfront, at the time of the transfer of residential property into a living trust. So if a property is valued at S$1 million, ABSD of S$350,000 will be payable in addition to buyer’s stamp duty.

How can I qualify for remission of ABSD (Trust)?

A trustee may apply to IRAS for remission of ABSD (Trust) if the following criteria are met:

1. All beneficial owners are identifiable individuals

Hence, if one of the beneficial owners of the trust property is not identifiable, no remission of ABSD (Trust) will be granted.[1]

2. Beneficial ownership has vested at the time of property transfer into the trust

If the residential property is to be held on trust for a minor whose interest in the property will only be beneficially vested at the age of 21, no remission of ABSD (Trust) will be granted.[2]

3. Under the terms of the trust, the beneficial ownership is not variable, revocable or subject to any subsequent condition.

The minor’s interest in the property should be immediate and must not be made contingent on him or her fulfilling certain conditions, such as graduating from university or turning 21. [3]

Is there a time limit to claim ABSD remission?

Do note that a claim for remission of the ABSD must be made to IRAS within 6 months after the trust instrument is executed.

Who is not an identifiable individual beneficiary?

Each of the following is not an identifiable individual beneficiary:

  1. An individual who has not been born on the date of the declaration of trust;
  2. An individual who is entitled only to the income of the property under the trust;
  3. An individual whose estate or interest in the property under the trust is a contingent or discretionary interest, or who becomes entitled to an estate or interest in the property only upon revocation of the trust.[4]

As such, the trust should be a fixed trust instead of a discretionary one, with the name of the minor beneficiary expressly stated.

 

How is the remission of ABSD (Trust) calculated?

The amount to be refunded will be based on the difference between the ABSD (Trust) rate of 35% and the ABSD rate corresponding to the profile of the beneficial owner with the highest applicable ABSD rate.[5]

Thus, in purchasing a first residential property under trust for a minor who is a Singapore citizen, the trustee should, in the ordinary case, be entitled to the full remission of the ABSD (Trust) rate of 35%.

What should the trust instrument contain?

To ensure that the trust is properly structured for the benefit of the child, the following are (non-exhaustive) key terms to consider when drafting a trust instrument:

  • The beneficial interest should vest on the child immediately upon the execution of the trust instrument
  • It should be a fixed trust instead of a discretionary trust
  • The name of the child should be expressly set out in the trust instrument
  • All economic benefits arising from the trust property, such as rental income, will accrue exclusively to the child
  • Upon turning 21, the child shall have the autonomy over managing the property

It is also important to recognise the legal and tax implications of holding a property on trust before proceeding to make such trust arrangements.

[1] https://www.iras.gov.sg/taxes/stamp-duty/for-property/appeals-refunds-reliefs-and-remissions/common-stamp-duty-remissions-and-reliefs-for-property/remission-of-absd-(trust)

[2] https://www.iras.gov.sg/taxes/stamp-duty/for-property/appeals-refunds-reliefs-and-remissions/common-stamp-duty-remissions-and-reliefs-for-property/remission-of-absd-(trust)

[3] https://www.mof.gov.sg/news-publications/press-releases/additional-buyer-s-stamp-duty-(absd)-for-residential-properties-transferred-into-a-living-trust

[4] Paragraph (1B), Article 3 of the First Schedule to the Stamp Duties Act 1929

[5] https://www.mof.gov.sg/news-publications/press-releases/additional-buyer-s-stamp-duty-(absd)-for-residential-properties-transferred-into-a-living-trust

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