Decoupling to save on tax? You may lose right to property if ties go awry

Test is whether transaction was done in good faith or was a deliberate attempt to avoid tax

- Tan Ooi Boon

Just google the word "decoupling" and you will see multiple listings from realtors and lawyers alike promoting their services to help property buyers avoid paying additional buyer's stamp duty (ABSD) with such a creative home ownership plan.

But those who have been peddling such services for years may want to hit the pause button for now so that they can study the recent High Court case which found that such transactions are not without pitfalls. Indeed, the court found that owners who decouple can run afoul of the tax law if they are not upfront with their arrangements.

This is especially so if property buyers are lured into thinking that decoupling is a watertight loophole that allows Singapore home owners to buy a second property without paying ABSD, while still retaining ownership in both properties.

Joint owners who decouple—that is, one takes over the whole property—often have the end-game of letting the person who sold out buy a second property as a first-timer who does not have to pay the 20 per cent ABSD levied on Singaporeans.

To further save on stamp duty, some couples plan ahead and buy their first property in a 99-to-1 share, so they need to pay the normal stamp duty on just that 1 per cent share if the 99 per cent co-owner takes over that tiny share.

This scheme is not the same as that in the recent 99-to-1 saga that saw some families penalized for avoiding ABSD.

Such cases involved first-time buyers who could not afford a home, so they roped in their relatives, who already own homes, to support mortgage applications.

But instead of buying as joint owners, which would attract ABSD on the full price, the first-timers bought solely as 100 per cent owners and then "sold" just 1 per cent of the property to relatives. So the relatives paid ABSD on only that minute share.

Owners caught using the two-stage sham have been ordered to pay the full ABSD and a 50 per cent surcharge.