How To Avoid ABSD Legally in Singapore 2023 – 8 Ways

This comprehensive article will delve into the intricacies of the Singapore property market and explore the latest strategies that savvy investors and homebuyers can employ to avoid or reduce ABSD obligations.

Whether a seasoned investor or a first-time buyer embarking on the path to homeownership, understanding these ABSD avoidance strategies can help you make informed decisions in a market where every dollar counts. So, let’s dive in!

What is the new ABSD in Singapore 2023?

For those unfamiliar, ABSD is a type of property stamp duty tax levied buyers must pay when purchasing residential property in Singapore. In December 2011, it was introduced as a cooling measure to deter Singaporeans, foreigners, and entities from purchasing multiple properties for speculative purposes.

The ABSD rate is calculated based on the selling price or the market valuation of the property (whichever is higher). Other factors like the buyer’s nationality and property ownership status play a role in deciding applicable ABSD rates.

On 27 April 2023, the Singaporean government announced an increase in ABSD rates, particularly impacting foreign buyers who now face a hefty 60% tax on property purchases. Let’s look at the ABSD Singapore rates as of 2023 after the recent cooling measures:

	First Property	Second Property	Third and Subsequent Property
Singapore Citizens (SCs)	No ABSD	20%	30%
Permanent Residents (PRs)	5%	30%	35%
Foreigners*	60%	60%	60%
Entities / Trustees	65%	65%	65%
Housing Developers	35%* + 5%**	35%* + 5%**	35%* + 5%**

*Housing developers have the option to request ABSD remission, contingent on meeting specific conditions.

**The 5% will not be remitted and is to be paid upfront upon purchase of residential property

Here are some notable changes to the ABSD rates for residential property:

• No change to ABSD rates for SCs and PRs purchasing their first residential property, constituting almost 90% of private residential property transactions in 2022.
• Second residential property for Singapore citizens (SCs): ABSD rates increased from 17% to 20%.
• Third or subsequent residential property for SCs and second property for Singapore Permanent Residents (PRs): ABSD rates rose from 25% to 30%.
• Third or subsequent residential property for Singapore PRs: ABSD rates rose from 30% to 35%.
• Residential property purchases by foreigners: ABSD rates surged from 30% to 60%.
• Residential property purchases by entities or trusts (excluding housing developers): ABSD rates jumped from 35% to 65%.

Since 2011, ABSD rates have been adjusted multiple times – in January 2013, July 2018, December 2021 and again in April 2023 – in a targeted response by the government to address rising property prices.

All property buyers, including Singaporean citizens, permanent residents, and foreigners, will now have to pay increased ABSD on top of the standard Buyer’s Stamp Duty (BSD) charged on all property investments in Singapore.

How to avoid paying ABSD in Singapore?

Given the latest changes in ABSD rates, here are some legal ways to excuse from paying ABSD in 2023:

1. Upgrade to an Executive Condominium (EC)

If you intend to upgrade your home but don’t plan to own two properties simultaneously, you need to pay the ABSD upfront. That’s annoying!

However, you can seek ABSD remission if you sell your previous flat within six months of acquiring the new home. It implies that you must still come up with the hefty 20% tax (or 25% for Permanent Residents) in cash or from your CPF account (yes, you can pay stamp duties like the ABSD with your CPF monies).

However, there’s a positive aspect to this: this particular rule only pertains to private condos. You don’t have to pay ABSD upfront when purchasing a new EC. Additionally, EC buyers receive upfront remission on ABSD. However, you need to sell your previous flat within six months after collecting the keys to your EC to qualify for this exemption. At least you don’t have to fork out the hefty ABSD fee upfront.

Note: If purchasing a newly developed property, you can use your CPF funds to make ABSD payments. For resale properties, the initial payment must be in cash through your lawyer. Once you become the legal owner of the property, you can then apply to use your CPF for ABSD payments.

Do I need to pay ABSD if I buy a private property?

When you upgrade from an HDB flat to a private property or buy another private home, you’ll have to pay ABSD upfront. That payment can be in cash or from your CPF account within 14 days of signing the Sales and Purchase (S&P) Agreement.

However, there’s a way to get some relief. If you sell your first property within six months, you can apply for an ABSD remission, which means you might get some of the money back.

2. Selling your first property before committing to a second property

If you’re eyeing a second property and wish to avoid the ABSD, a common approach is to arrange the sale of your first property before committing to the Option to Purchase (OTP) for your second one.

The idea is straightforward: you sell your existing property and utilise the sale proceeds to purchase another property under your name while your spouse simultaneously acquires a smaller property.

Let’s say you and your spouse sell your 4-room HDB flat for $500,000. You can then use $300,000 from the sale as a downpayment for a $1 million condo in your name while your spouse contributes $200,000 towards a smaller condo in their name. Since both of you don’t own any other property at the time of purchase (as your previous property has been sold), neither of you will be subject to ABSD.

If you can find temporary accommodation or rent a place, selling your existing property before purchasing a new one ensures you are not subject to ABSD as you transition to your new home.

However, it’s essential to consider that for this strategy to be successful, you and your spouse must meet the eligibility criteria for the respective mortgages. This approach offers a practical way to navigate ABSD requirements while pursuing your property investment goals.

3. National or Permanent Resident under the Free Trade Agreements (FTAs)

Depending on your nationality, you might be exempt from or eligible for remission of ABSD under FTAs. Nationals or Permanent Residents of the following countries enjoy the same ABSD rates as Singaporeans when buying residential properties in Singapore:

• Iceland
• Liechtenstein
• Norway
• Switzerland, and
• The United States of America

This privilege arises from the “national treatment” obligation outlined in the Singapore-European Free Trade Association (ESFTA) agreement.

Nationals or Permanent Residents of these countries are exempted from ABSD for their first property but pay ABSD for second and subsequent property purchases.

Nationals and Permanent Residents of these countries are eligible for ABSD remission under the respective FTAs. The remission can be facilitated by their conveyancing lawyer through the e-stamping portal on the IRAS website.

Impact of increased ABSD in Singapore on foreign buyers

The increase in ABSD rates in Singapore can curtail investment activity, constituting 10% of property transactions throughout 2022. The most substantial impact will be felt by foreign buyers, who accounted for about 5% of property transactions in the previous year. This hike in ABSD rates will discourage many potential foreign buyers and investors, reshaping the dynamics of the Singaporean property market.

As mentioned earlier, the government increased ABSD for foreigners purchasing private property –  a whopping 100% increase from 30% to 60%.

Property acquisitions by foreign buyers (most active in the Core Central Region and luxury segment) might witness a sharp decline. The prospect of paying $1.2 million in ABSD for a $2 million property would prompt even the most affluent investors to reconsider their decisions.

4. Buy the first home under one spouse’s name

Arguably, one of the easiest ways around ABSD is buying the property under one spouse’s name instead of the usual joint ownership.

If you and your spouse have the means to invest in a private property and one of you can comfortably manage the mortgage alone, this strategy can help you circumvent the ABSD when contemplating a second property purchase.

Consider this scenario: Purchase your first home solely under one spouse’s name. This step liberates the other spouse from ABSD obligations, making them eligible to buy another property as a first-time buyer without incurring additional stamp duty costs.

This approach offers a hassle-free solution to navigating ABSD when acquiring a second property, provided you meet specific criteria. You can designate either you or your spouse as an essential occupier as opposed to being a co-applicant or co-owner.

This choice requires some pre-planning, typically during the HDB flat application process. Once designated as an essential occupier, this individual can purchase a private property without incurring ABSD after the 5-year Minimum Occupation Period (MOP), enjoying the status of a first-time homeowner.

Additionally, you’ll be eligible for a higher loan-to-value (LTV) limit of 75%, compared to the 55% limit for second-timers. However, it’s essential to consider that essential occupiers cannot utilise their CPF for the first flat’s payment, including the downpayment and monthly instalments. Ensure that the primary applicant has adequate CPF funds for the downpayment.

Lastly, it’s essential to consider the potential legal implications. In the event of a dispute or divorce, the essential occupier, despite significant financial contributions, does not hold legal ownership of the property if it’s solely under the other spouse’s name. It highlights the need for careful planning and understanding of the potential consequences when pursuing this strategy.

5. Explore investment in industrial and commercial properties

Investing in commercial properties in Singapore offers a compelling strategy to bypass the ABSD that typically applies to residential properties. Here’s why this avenue is worth considering:

i. ABSD Exemption: Commercial properties are not subject to ABSD rates. This exemption makes them an attractive option for investors looking to expand their property portfolio without additional stamp duties.

ii. Higher Rental Yields: Commercial properties tend to yield higher rental returns, averaging around 5%, compared to the 2% to 3% typically seen in the residential sector. This potential for increased income can make commercial property investments financially rewarding.

However, it’s crucial to be aware of the unique characteristics and risks associated with commercial properties:

• Higher Costs: Commercial properties generally have a higher price tag than residential properties, necessitating more substantial cash outlays.
• Cash Payments: The downpayment for commercial properties must be made entirely in cash, unlike residential properties where you can use CPF.
• GST Charges: Commercial properties are subject to Goods and Services Tax (GST), currently at 8%. You must pay the GST charge in cash.

While commercial property investments can be lucrative, they require thorough research and a deep understanding of the commercial real estate landscape, which differs significantly from residential property.

Different segments, such as shophouses, retail spaces, offices, and industrial sites, come with varying risks and returns, making it essential to tailor your investment strategy to your objectives and financial capacity.

6. Purchase a property under a trust for your children

Another viable method to bypass the ABSD is to buy the property and name it under a trust for your children.

When you buy a property under a trust for your children, the property legally belongs to them. That exempts you from paying ABSD. To execute this strategy, you’ll need the assistance of a conveyancing lawyer.

Previously, a 35% ABSD charge would apply if the property was purchased under your children’s name (provided they didn’t own any other properties).

However, as of 27 April 2023, a 65% ABSD is payable upfront for any transfer of a residential property to a living trust, regardless of the presence of an identifiable beneficiary. A refund of ABSD can be applied within six months after the trust document is executed.

Eligibility criteria for ABSD refund:

• All beneficial owners of the residential property must be identifiable individuals (i.e., you cannot transfer it to an unborn child).
• The beneficiary owner must own the property at the time of application, not in the future.
• The trust deed cannot be changed, revoked, or subject to conditions, ensuring it constitutes a genuine gift to the beneficiary.

Key considerations:

• Buying property under a trust is suitable for those with significant cash reserves, as banks do not offer loans for trust properties.
• The property is legally owned by your child, and the rental income or sales proceeds also belong to them.
• Draft the trust document meticulously to meet ABSD refund conditions, as errors can result in financial losses.

Essentially, this method allows you to set up a property trust for your child below 21 years old, effectively buying a property under their name while avoiding ABSD.

7. Buying a dual-key unit and renting out the sub-unit

Dual-key units offer a unique proposition wherein you’re purchasing a home that consists of two separate units, side by side, but for the price of a single unit. This arrangement provides a distinct advantage when it comes to ABSD since it’s one property, helping you avoid the ABSD that you might incur when buying your second property.

In a dual-key unit, the primary and the sub-unit share a common foyer while maintaining independent living spaces. Depending on the unit’s layout, each portion can have dedicated living areas, including kitchens and bathrooms. This versatility appeals to a broad spectrum of buyers and investors. It allows homeowners to rent out the sub-unit while retaining their privacy.

However, it’s important to note that the uniqueness of dual-key units often comes with a higher price per square foot. In fact, they can cost up to 25% more than conventional units. Despite the added cost, the potential for rental income and the flexibility offered can make dual-key units an attractive investment option for those seeking both privacy and rental returns.

8. Decoupling (if the cost doesn’t exceed the ABSD)

One of the most popular ways to avoid the ABSD is to decouple. For properties purchased jointly, consider decoupling by transferring one spouse’s share to the other. It allows the spouse who was not the sole owner of the first property to buy a second property under their own name – without incurring the ABSD. However, decoupling has its costs and considerations.

Transferring shares of property between spouses is not free. If you both own a $1 million property, and your spouse transfers her 50% share of the property to you, you’d still have to pay the BSD on $500,000 as you would need to buy from them.

The BSD rates were revised with effect from 15 February 2023. Here are the new BSD rates for higher-value residential properties:

Purchase Price/ Market Value	BSD Rates for Residential Properties
First $180,000	1%
Next $180,000	2%
Next $640,000	3%
Next $500,000	4%
Next $1,500,000	5%
Above $3,000,000	6%

Additionally, other stamp duties, such as the Seller’s Stamp Duty (SSD), may also apply if the property is decoupled within the first three years of buying it.

Other costs include conveyancing fees, prepayment penalties for a bank loan, and miscellaneous costs such as valuation fees.

Consider all the costs of the decoupling process and ensure they are less than paying the actual ABSD, otherwise, there’s no point in doing it.

If you want to decouple when buying a new property, ensure the sole owner has the income to support the new mortgage.

Is decoupling illegal in Singapore?

Decoupling itself is not illegal, but using it to evade paying ABSD tax is. To understand this, we must understand the difference between tax avoidance and tax evasion.

Tax avoidance involves using legitimate methods and strategies to reduce tax liability. While tax avoidance is within the boundaries of the law, it may sometimes include arrangements that appear artificial or contrived and lack genuine commercial purpose.

On the contrary, tax evasion is the illegal act of deliberately evading taxes through fraudulent means. Tax evasion is illegal and subject to penalties, including fines and imprisonment. It typically involves deliberate deceit or illegal actions to reduce tax liability and is strictly prohibited by tax authorities.

So, we can say that decoupling is a possible way to avoid tax. However, if anyone is deliberately providing inaccurate or incomplete information about their activities to reduce their ABSD tax liability, it will be considered tax evasion.

The Inland Revenue Authority of Singapore (IRAS) is now investigating property purchases where the homeownership is split in a 99-to-1 ratio.

IRAS aims to uncover “contrived or artificial” setups homebuyers use to avoid paying ABSD. Buyers who entered into a 99-to-1 scheme with the possible intention of tax avoidance, in which the 1% stake is sold after the OTP (option to purchase) is exercised, might come under the radar of Singapore’s tax authority.

Defaulters may have to pay the stamp duty plus a 50% surcharge on the additional duty payable, with further penalties if not paid by the deadline.

Do I need to pay ABSD if I have overseas property?

The ABSD is exclusive to local residential properties in Singapore, exempting overseas property ownership from these calculations. In other words, overseas property ownership does not factor into ABSD obligations when acquiring Singaporean residential properties.

However, specific restrictions apply when owning HDB flats and overseas residential properties. If you possess overseas residential property and plan to buy an HDB flat, you must sell the overseas property within six months of the HDB purchase. Owning an HDB flat in Singapore restricts you from purchasing residential property overseas until you’ve met the HDB’s MOP (typically five years).

If you already own real estate, including other HDB flats and local or overseas private properties, you are ineligible to buy an HDB flat in Singapore.

Is it worth it to pay ABSD in Singapore?

In 2023, Singapore’s property market presents a nuanced landscape, questioning whether paying the Additional Buyer’s Stamp Duty (ABSD) is a wise decision. It demands a deep understanding of the revised ABSD rates and a strategic property ownership approach.

Property experts emphasise that, at times, paying ABSD can be a prudent choice. That holds particularly true when a property offers significant appreciation potential or a robust rental yield. In such scenarios, the potential gains might outweigh the costs associated with ABSD.

The key takeaway is that potential property investors should not forego potentially lucrative opportunities solely to evade ABSD payments. Instead, weigh the long-term benefits of property appreciation and rental income against the upfront ABSD expense.

In essence, while ABSD may seem like an additional financial burden, it should be assessed in the context of the property’s overall investment potential, which may justify the cost.

Final Thoughts

The recent changes to ABSD rates in Singapore have compelled property buyers to explore legal ways to minimise or avoid ABSD payments. Singaporean upgraders should consider selling their existing properties before purchasing new ones to avoid the rush to sell within six months and the associated ABSD costs.

If that’s not feasible, the strategies discussed can help you legally minimise your ABSD obligations.

While these strategies offer options, assess your situation, financial capability, and investment goals. It’s wise to seek professional advice to navigate the intricate landscape of property ownership in Singapore effectively and make informed investment decisions.

If you’re planning to invest in property, it’s essential to understand how the new ABSD rates hike may affect you and take a strategic approach to your investments.

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