For those who are buying a private property, you might find articles online teaching you how to beat ABSD or to avoid ABSD legally. Alternatively, you must have been told to consider the manner of holding when you purchase the property. For instance, you might have been advised to hold the property in unequal shares such as 99:1. This is likely to limit the amount of additional buyer’s stamp duty (ABSD) payable.
How does this 99 to 1 property deal work?
This transaction works where the owner wishes to buy another property but does not want to pay the ABSD rate of 17% (if this is the second property) or 25% (if this is the third and subsequent property).
The owner will then ask his child to buy the property in his sole name. The child will not incur any ABSD because this is likely to be his first property. But the child cannot finance the mortgage alone and so he needs someone to come on board as a co-owner.
The child will proceed to sell 1% share of the unit to the co-owner.
The co-owner who owns another property will only pay ABSD on the 1% share instead of the 100% share if the co-owner was the sole owner.
Why do people do this?
The simple reason is to avoid paying ABSD on top of the existing Buyer’s Stamp Duty.
Example: For a $1million property, the ABSD is $170,000 (if this is the second property) or $250,000 (if this is the third or subsequent property).
However, with the 99 to 1 scheme, you are only paying a fraction of the ABSD (which you would otherwise incur).
Should you do this?
The short answer is no. Those who are caught for avoiding ABSD will be penalised. Not only do you have to pay the rightful amount of stamp duty, you can be slapped with a 50% surcharge. You will end up with a double loss.
Further, home buyers who have previously transacted in the 99:1 deal to avoid paying ABSD have come under scrutiny by IRAS. These buyers must explain why 1% of the same property was sold to a relative / family member in such a short span of time.
I should not be worried since I have transacted in such a deal before this scrutiny
Well, there is no time bar for IRAS to carry out such auditing. It is a matter of time that the law will catch up with you; you cannot run away forever.
A simple takeaway from this: just because someone has previously done it before but has not been taken to task - it does not make it ok for you to do it.