Decoupling Property

What is decoupling in Singapore property market term? Once the property is owned by husband and wife, by decoupling it means husband is buying over wife share of ownership on commonly own property or vice versa.

Why do a lot of couples or share owners want to do decoupling? The main reason is to avoid Additional Buyer Stamp Duty or ABSD when they plan to buy their next property for investment by releasing current property ownership on one party.

But does decoupling property is always the best way to reduce ABSD? What are the other effect on CPF and loan? These factors also need to be considered before doing decoupling.

Type of property allowed to decouple

HDB decoupling is not allowed for married couple. The part purchase is allow if there is a change in the existing family structure (such as divorce, marriage or demise of an owner), or the existing owners need to do an ownership change to retain the flat. For more complete guide please refer to HDB page at http://www.hdb.gov.sg/cs/infoweb/residential/living-in-an-hdb-flat/changing-owners-occupiers/transfer-of-flat-ownership

Private property decoupling is generally allowed without much restriction except for the case when one of the parties is going bankrupt.

Few methods for private property decoupling used are:

  • Gifting
  • Part purchase (Fully paid property)
  • Part purchase (with loan)

Gifting

This method is usually done if the property is already fully paid by releasing the property ownership to the other party without monetary transaction.

3 things to note:

  1. IRAS tax is still payable based on the market value of the property and independent valuation will be assigned to value your property.
  2. CPF money used to purchase the property need to be returned with its accrued interest.
  3. If the transferor becomes bankrupt within 5 years from the date of transfer. The creditor may have the right to seize the transferred shares of the property.

Part purchase on fully paid property

This method is similar to gifting. The difference is there is money transaction between 2 parties.

Same as gifting the 2 important things to note are:

  1. IRAS tax is still payable based on the market value of the property and independent valuation will be assigned to value your property.
  2. CPF money used to purchase the property need to be returned with its accrued interest

Part purchase on loan outstanding property

This is the most common case and here is the step by step on how to do it (Assuming husband buying wife’s share)

  1. Husband needs to get banker to refinance the total outstanding loan (husband and wife)
  2. Outstanding amount in CPF + Accrued Interest of the wife must be returned
  3. 2 set of lawyers must be assigned, one to represent seller, the other to represent buyer

Effect on the CPF

If you don’t decouple and you used both CPF when you purchased your first property and if you would like to use CPF for your next property purchase then each of you need to set aside Basic Retirement Sum. The amount depends whether you have reached 55 years old or below, you can check the amount in CPF website at https://www.cpf.gov.sg/members/schemes/schemes/retirement/retirement-sum-scheme

Example 1: If you are below 55 years old in year 2017, you need to set aside SGD 83,000 (Ordinary Account + Special Account). The excess above 83,000 can be used for the payment of your new property purchase.

Example 2: If you reached 55 years old after 1 July 2013, you need to set aside SGD 74,000 as your basic retirement sum. The excess above 74,000 can be used for the payment of the property.

If you decouple (Assuming husband buying wife’s share) and if CPF involved in their first purchase then wife’s CPF outstanding amount and accrued interest has to be returned.

Effect on the loan

If you don’t decouple and you have 1 outstanding property loan, your next property loan to value maximum will be at 50% (assuming borrow 30 years or max age of 65 years old whichever lower).

If you decouple (Assuming husband buying wife’s share) then wife will be able to take up to 80% loan on the next property purchase (TDSR rules apply) and husband can withdraw more cash from refinancing when buying over wife first property ownership share.

Effect on the stamp duty (ABSD and SSD)

Reducing stamp duty tax payable is actually the main reason why investors are doing decoupling property.

  First Property

Second Property

Third or More Property

Singapore Citizen

N/A

7%

10%

Singapore PR

5%

10%

10%

Foreigner

15%

15%

15%

Case studies: Assuming Mr and Mrs Ong currently own a 3 bedroom condo value at SGD 2 million and they intend to purchase another property 1 bedroom at SGD 1 Million. Mr Ong is Singapore PR and Mrs Ong is a Singapore citizen.

There are 4 scenarios to be considered on their next purchase

  1. Mr and Mrs Ong buy the 2nd property together without decoupling
  2. Mrs Ong buy the 2nd property herself
  3. Mr Ong buy Mrs Ong shares and Mrs Ong buy the next property herself
  4. Mrs Ong buy over Mr Ong shares and Mr Ong buy the next property himself

Scenario 1: Mr and Mrs Ong buy 2nd property together without decoupling

Total stamp duty will be: 13% of 1,000,000 minus 5,400 = SGD 124,600

13% of stamp duty because Mr Ong is a PR and buying second property therefore the total stamp duty is 3% + 10%

Scenario 2: Mrs Ong buy the second property herself

Total stamp duty will be: 10% of 1,000,000 minus 5,400 = SGD 94,600

10% of stamp duty because Mrs Ong is a Singapore citizen and buying second property therefore the total stamp duty is 3% + 7%

Scenario 3: Mr Ong buy Mrs Ong shares and Mrs Ong buy the next property herself

A. Total stamp duty payable when Mr Ong buy Mrs Ong share will be: 8% of 1,000,000 (50% share of the 2 million) minus SGD 5,400 = SGD 74,600

8% of stamp duty because Mr Ong is a Singapore PR and buying first property therefore the total stamp duty is 3% + 5%

B. Total stamp duty payable when Mrs Ong buy the new property will be: 3% of 1,000,000 minus SGD 5,400 = SGD 24,600

3% of stamp duty because Mrs Ong is a Singapore citizen and buying first property therefore the total stamp duty is 3%

Total stamp duty payable will be (A+B): 74,600 + 24,600 = SGD 99,200

Scenario 4: Mrs Ong buy over Mr Ong shares and Mr Ong buy the next property himself

A. Total stamp duty payable when Mrs Ong buy Mr Ong share will be: 3% of 1,000,000 (50% share of the 2 million) minus SGD 5,400 = SGD 24,600

3% of stamp duty because Mrs Ong is a Singapore citizen and buying first property therefore the total stamp duty is 3%

B. Total stamp duty payable when Mr Ong buy the new property will be: 8% of 1,000,000 minus SGD 5,400 = SGD 74,600

8% of stamp duty because Mr Ong is a Singapore PR and buying first property therefore the total stamp duty is 3% + 5%

Total stamp duty payable will be (A+B): 74,600 + 24,600 = SGD 99,200

Looking at the just the total stamp duty payable above, scenario 2 (Mrs Ong who is Singapore citizen) is the best way to go. Therefore decoupling does not necessarily the most prudent way to save on ABSD.

Other Factors To Consider On Decoupling Property

On the other side, effects on CPF and Loan to value are the other essential factors needed to be considered. If Mrs Ong chosen to buy the property herself without decoupling, she must set aside CPF basic retirement sum (depending on her age when she make the purchase) and she also must be aware that if she still has existing loan on the current property, the maximum loan to value is only up to 50% and she must also note that 25% cash + 25% cash/CPF

In addition, seller stamp duty applies if the first property is bought and transferred within 3 years.

Transferred within 1st year: 12% (assuming 50% share, it will be 12% of 1 million)

Transferred within 2nd year: 8% (assuming 50% share, it will be 12% of 1 million)

Transferred within 3rd year: 4% (assuming 50% share, it will be 12% of 1 million)

No seller stamp duty payable if transferred after 3 years.

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