An Interview with Rayney Wong, a Veteran Property Investor
In property purchasing, how you legally position owners and the properties can often have a distinct difference in how tax is calculated. Many have been asking us to share some common arrangements that buyers have been using in property transactions. Truuue’s Jason Mah interviewed Mr Rayney Wong, a veteran in real estate investment and legal counsel to Truuue to discuss some of these practices.
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JM: Rayney, real estate tax in Singapore is tightly legislated, our readers are interested to know how tax planning can aid in their property investment. How important is tax planning in real estate?
RW: Due to the high taxation in Singapore in property investment and the many cooling measures, buyers/sellers have found that good tax planning often results in substantial savings for the parties.
JM: We have heard of owners “Decoupling” their properties. What is this and can you explain a little more about it?
RW: Decoupling is effectively a part share sale and purchase of a property whereby an outgoing co-owner sells his/her share of the property to his/her remaining co-owner, resulting in the property being solely owned by the remaining co-owner.
JM: How does this help in tax planning?
RW: In this way, the outgoing co-owner is freed up (means zero count of residential property), and will be eligible to purchase another property as his/her first property without having to pay Additional Buyer’s Stamp Duty (ABSD) (if he/she is a Singapore citizen).
In addition, the Loan-to-Value (“LTV”) limits for individuals who have no outstanding housing loan is at 80% or 60% (if loan tenure is more than 30 years or extends past age 65), with minimum cash down payment at 5%. Comparatively, if the owners had not “decoupled” and had an outstanding housing loan, the LTV limit would have been lowered to 50% or 30% (if the loan tenure is more than 30 years or extends past age 65), with minimum cash down payment raised to 25%.
JM: What are factors buyers need to consider before “decoupling”?
RW: Well, owners must consider various legal issues before they proceed to “decouple”. For the outgoing co-owner, factors to consider include Seller’s Stamp Duty (SSD) liability, bank’s penalty charges for breaking lock-in period and legal costs and expenses. For remaining co-owner, there are various issues to consider such as new SSD liability, loan eligibility, ABSD liability (especially, if they have multiple homes), the usual Buyer’s Stamp Duty (BSD), funds available for the part-purchase and of course legal costs and expenses (which is the least of their worries as this is minimal as compare to the others).
Buying under a Trust Fund
JM: That sounds like quite a bit to understand. How about those families that choose to buy properties under trust for the benefit of their child or children? Is that better?
RW: Well, there is no such thing as which is a better choice. What is best for you may not work well for anyone else. Trust arrangement works only if the buyer is cash-rich. For purchase of properties under trust arrangement, the buyer is not allowed to take any financing nor can CPF savings be used. If parents purchase a property under trust for the benefit of their children, then the profile of their children is used to determine the applicability of ABSD. In most situations, children do not have any count of residential property, and as such ABSD is not payable (if children are Singapore citizens). However, parents must understand that with this trust arrangement, parents are having only a legal ownership of the property, and their children have the beneficial interest of the property and are the true owners of the property.
JM: I hear that some families also pass along property via an inheritance. What is the difference there?
RW: Acquisition of property via inheritance is not subject to any payment of stamp duties, regardless of the count of residential properties a beneficiary may have.
JM: Sounds like estate planning for the rich.
RW: There is more to it than just inheritance. Inheritance only happens when a person passes away. What if a person is seriously ill and not able to take care of himself and his properties? What if that person grows old and loses mental capacity? What will happen to him and his properties in the circumstances?
Estate planning is not just for the rich. A person may only own a HDB flat and a POSB savings account. If he/she does not plan well, what will happen to him/her if he/she dies, falls seriously ill or loses mental capacity?
Our Government has been encouraging more Singaporeans to plan ahead to protect their own interests. I would say proper estate planning includes:
- making a Will (which takes effect only after a person passes away) to appoint an executor, decide on beneficiary or beneficiaries and other matters such as guardianship of children;
- executing a Lasting of Power (which takes effect only if a person loses mental capacity) to appoint a trusted person to decide and act on behalf in the event of mental incapacity; and
- if and when necessary, making a Power of Attorney (which generally take effects when a person is alive, of sound and and not an undischarged bankrupt) to appoint a trusted person to handle transactions relating to properties, such as sublet, sale and general management.
JM: Thank you so much for answering these questions on some possible ways property buyers can creatively plan for their investments. I think it will be interesting to our readers. Last but not least, I know you have a book called “Last Wishes” that helps Singaporeans with financial, will and funeral planning.
RW: You are welcome. Always a pleasure to work with Truuue. Yes, the book is co-written by myself, Alfred Chia of SingCapital, Darren Cheng and Jenny Tay of Direct Funeral in hope that Singaporeans can be more prepared in these areas. You can purchase it in most major bookshops.
JM: That’s great. I’m sure our readers will look out for it.
In practice since 1984, Rayney has amassed more than 30 years of experience in the property domain covering conveyancing law and litigation. He is also the author of Best-Seller “Secrets of Property Millionaires” and deeply passionate about sharing his professional and personal experience in property investment.
This interview excerpt was created for Truuue following Rayney’s discussion around “Creative Strategies in Property Investment” at Truuue’s D15 event.
You can reach him at 9668 1737.
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