How Singaporean Homeowners Used The ‘99-to-1’ Loophole To Escape Paying Additional Buyer’s Stamp Duty

14 May 2024 | BY

Singaporean homeowners looking to save money on buying additional properties have been using the ‘99-to-1’ method, though it’s legally dubious at best.

One thing that can be said about Singaporeans is that we love a good deal—the long, snaking lines for freebies is proof enough of this. 

That’s why we’re not surprised that some Singaporean homeowners have even found a way to cut costs when buying property. If you’ve been following the news recently, you might’ve heard about the ‘99-to-1’ method, which has been used to minimise Additional Buyer’s Stamp Duty (ABSD) when buying additional properties.

What Additional Buyer’s Stamp Duty (ABSD) means

While the term ABSD sounds intimidating, it’s actually quite simple. ABSD is essentially an additional tax levied when property is purchased, with rates varying based on citizenship status and the number of properties owned. Here’s a table with the exact numbers:

Profile of Buyer ABSD
Singapore Citizens (SC) buying first residential property Not applicable
SC buying second residential property 20%
SC buying third and subsequent residential property 30%
Singapore Permanent Residents (PR) buying first residential property 5%
PR buying second residential property 30%
PR buying third and subsequent residential property 35%
Foreigners buying any residential property 60%
Commercial entities buying any residential property 65%
Housing Developers buying any residential property 35%

(Plus Additional 5% (non-remittable)

Trustee buying any residential property 65%

Data adapted from: IRAS

The taxed amount is a percentage based on either the market value or purchase value of the property owned, whichever is higher.

As you can see from the rates, Singaporean citizens purchasing their first property are not liable to ABSD. This is in part due to the fact that ABSD was introduced as a cooling measure—a method to keep resale prices  from getting too high.

The ‘99-to-1’ method explained

Image credit: TheSmartLocal

The ‘99-to-1’ method then emerged as a loophole by which you can avoid hefty taxes while still being able to purchase multiple properties. The method hinges on acquiring a 1% share of a property owned by a first-time buyer.

How the ‘99-to-1’ method minimises ABSD

As established above, the amount taxable by ABSD is based on the property owned—this means that someone with a 1% share of a home pays ABSD that won’t exceed that amount.

For example, imagine a property worth $2M: If it’s a second purchase, the ABSD would be 20%, or $400,000. Conversely, someone who owned 1% of the same property would only need to pay ABSD equal to $4,000.

Why having co-owners makes purchasing a house easier

Image credit: TheSmartLocal

While it’s evident that the ‘99-to-1’ method is profitable for those who own multiple properties, it’s not immediately clear why the first-time buyer would sell a 1% share of their property to someone else. The long and short of it is that having co-owners makes purchasing a property easier. 

The amount one can loan when purchasing a home is based on the total income of the people who own the home, which means that having a co-owner allows a larger loan to be taken. Thus, the amount of cash the homeowner needs to cough up as downpayment is reduced, allowing for more financial flexibility.

How the IRAS is cracking down on homeowners exploiting the loophole

If you think that the loophole is too good to be true, you’re right. The method is legally dubious at best, which means that the IRAS have been proactive in dissuading the use of the ‘99-to-1’ method—this is evident from the collective $60M which has been reclaimed from 166 cases which exploited it. 

Hefty penalties for those engaging in tax evasion

However, since it’s not inherently illegal, penalties have been issued on a case-by-case basis. Only those with proper documentation detailing valid reasons for a ‘99-to-1’ property share will not be hit with a fine.

Those deemed guilty of avoiding the ABSD tax will have to pay the original stipulated amount, in addition to a considerable 50% surcharge. Using the previous example, the amount payable would be 150% of the original ABSD of $400,000: a whopping $600,000, which is not pleasant to say the least.

Providing significant cash for exposing such cases

What is attractive is the $100,000 that IRAS is offering to whistleblowers who inform them of anyone abusing the ‘99-to-1’ method. This ensures  that they’re able to catch as many cases of those evading ABSD as possible. 

Everything you need to know about ‘99-to-1’ loophole

Regardless of how tempting it is to save money buying a house, using the ‘99-to-1’ method is risky at best, and illegal at worst. With the heavy penalties levied on those who are caught exploiting the method, it might just be safer to pay the rightful ABSD.

For more HDB explainers:

Cover image adapted from: TheSmartLocal

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