Unlocking your luxury home. Decoupling — saving taxes on new property.

Decoupling — Saving Taxes on New Property. Buying a Second Home

Key Takeaways

  • Decoupling is the transfer of ownership where one of the owners acquires complete ownership of the current property
  • Decoupling frees up the other spouse to buy a second property without paying Additional Buyer’s Stamp Duty (ABSD)
  • Would require the assistance of a conveyancing lawyer to prepare and submit the paperwork which ranges from $6000-$6500
  • Several factors can determine whether decoupling would save more money than paying ABSD

Decoupling

Looking around the dining room of a typical morning, you spot the familiar blemishes on the walls of a house well-lived. Memories of moving in as newly weds, lazy Sundays spent watching TV and the familiar smell of what is home. However, there’s the irrepressible urge that it is time to move into something bigger with new memories to be forged. Your spouse and you find the perfect place, but quickly realise a problem. The joint ownership of your current house means that Additional Buyer Stamp Duty (ABSD) for your second property (17%, higher for PRs) has to be paid which could be costing you hundreds of thousands of dollars. This is where decoupling could be the perfect solution.

What is decoupling?

Decoupling, if a residential property is co-owned, is the transfer of ownership where one of the owners acquires complete ownership of the current property. This is a typical practice for married couples trying to purchase a second home. A couple can separate ownership of the house by removing one spouse’s name from ownership. Thereby, he or she will be freed to purchase a new home without having to pay ABSD for the couple’s second property.

Decoupling, if a residential property is co-owned, is the transfer of ownership where one of the owners acquires complete ownership of the current property. This is a typical practice for married couples trying to purchase a second home. A couple can separate ownership of the house by removing one spouse’s name from ownership. Thereby, he or she will be freed to purchase a new home without having to pay ABSD for the couple's second property.
What happens when you decouple and the potential costs

How its done

Typically, with the assistance of a conveyancing lawyer, the jointly owned property is transferred through a Sales and Purchase Agreement. Both parties would have to mutually consent and sign the Agreement, after which it can be stamped and sent for approval.

The alternative arrangement could be by way of gift, however, this is less recommended since it could be make the property undervalued which has knock on effects when the buyer applies for a bank loan.

What are the potential fees

Conveyancing Fees

  • Fees paid to the conveyancing lawyer for drafting and submission of the paperwork typically range from $6000-$6500.

Stamp Duties

  • Stamp duties are liable within 14 days of execution of the sale and purchase agreement. Stamp duty is a form of tax where there are two sides: buyer and seller stamp duties. Buyer stamp duty cost increases progressively with the purchase price of the property, the highest being 4% after $1,000,000 for residential properties. Seller stamp duty cost decreases the longer you hold the property, starting at 12% for up to 1 year and 0% after 3 years.

Repayment to CPF

  • The selling partner of the joint ownership will have to repay any CPF money (including accrued interest) that was used towards purchasing the initial property. The refund of CPF occurs within 10 working days of the sale, in which the funds would then be available towards purchasing the second property.

Prepayment penalties

  • In the course of restructuring your loan for your second property, you may incur prepayment penalties depending on your loan agreement. Prepayment penalties typically occur when repaying within the first 2-5 years of the loan being taken out and can be about 0.75-1.5%.

How much savings from Decoupling?

Typically, decoupling saves the most money for Singaporean couples who’s second property is worth around the same if not more than the initial property that was bought more than roughly 5 years ago.

For example – Property bought 10 years ago worth $2,000,000, 50/50 split with partner, buying second property also worth $2,000,000.

Without Decoupling:

  • ABSD = $2,000,000 x 17% = $340,000
  • Buyer Stamp Duties (Second Property) = $2,000,000 x 3.23% = $64,600
    • Note: 3.23% Average Tax Rate for $2,000,000 property
  • Conveyancing Fees = $3,000
  • Total = $407,600

With Decoupling:

  • Buyer Stamp Duties (Joint Property) = $2,000,000 x 50% x 2.46% = $24,600
    • Note: 2.46% Average Tax Rate for $1,000,000 property
  • Seller Stamp Duties = $0
  • Buyer Stamp Duties (Second Property) = $2,000,000 x 3.23% = $64,600
  • Prepayment penalties = $0
  • Conveyancing Fees = $6,000 (both party fee)
  • Total = $95,200

Savings from Decoupling = $407,600 – $95,200 = $312,400 (approx 15%)

Conversely, decoupling could save a lot less or even be more costly for first properties that were purchased within the last 3-5 years or where the value of the second property is less than the first. Consult a lawyer for the best possible arrangement.


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