Retirement planning is always such a polarizing topic among Singaporeans. Those who are currently in the retirement phase tend…
In the realm of property ownership, the tenancy-in-common (TIC) arrangement has long provided a flexible framework for co-ownership. However, a specific loophole within this system, known as the “99-to-1” tenancy-in-common loophole, has raised concerns and sparked debates among Singaporeans. We take a closer look into this loophole and what IRAS is doing to clamp down on these exploiters.
Most of us know the Joint Tenancy type of ownership structure. Joint Tenancy is where the property is owned equally by two parties, which is usually between you and your spouse. When one passes on, the surviving party inherits the whole share.
For Tenancy-in-Common (TIC), it is not quite the same as a Joint Tenancy.
Firstly, with a TIC, there’s no survivorship right. When the co-owner passes on, the deceased owner’s share is passed on through a Will or the Intestate Succession Act. The surviving party doesn’t inherit it fully.
Secondly, a co-owner under TIC has the right to sell, transfer, or mortgage their ownership share without consent from the other co-owner.
Thirdly, under TIC, each co-owner owns a distinct percentage of the property. You do not necessarily have to split it into a 50-50 ownership. As long as the ownership adds up to 100%, you can split it in any way you like, including a 99-to-1 split. This is where the 99-to-1 TIC comes into play.
The main reason for exploiting the 99-to-1 TIC loophole is to avoid Additional Buyer Stamp Duty (ABSD). The latest round of cooling measures introduced in April 2023 means that you will need to pay at least 20% in stamp duty if you want to own multiple properties.
By splitting the ownership into a 99-to-1 split, the 20% ABSD will only be levied on the 1% ownership. Let’s say you bought a $5 million property. The 1% owner only owns a $50,000 share of the property. The 20% ABSD will be merely $10,000 (20% x $50,000). If the 99-to-1 TIC loophole wasn’t exploited, your ABSD bill would have been $500,000. That’s a 50x difference.
Sharp eyed readers might point out a logical flaw in this way of gaming the system. If you want to avoid ABSD, why not just decouple completely? You and your spouse can just own one property each and the problem is solved, isn’t it? Indeed, that’s the best way to go about it.
However, the problem is with the financing. If both you and your spouse have enough income to finance both properties, then this works. But what if you are relying on one person’s income to finance the property? This is where the 99-to-1 TIC comes in.
The person with the higher income will have to be the 1% owner. Since the high earner and low earner are both co-owners of the property, the high earner can use his/her income to finance the property.
To be fair, the 99-to-1 loophole has already been exploited for a while. However, it was kind of a grey area. The other question is, why did it suddenly surfaced to the top of the agenda for IRAS?
Recent news seem to suggest that the government is trying to discourage homebuyers from owning multiple properties in Singapore. Theoretically, this will help to ease the supply side pressure that is causing housing prices to trend upwards.
To clamp down on these black sheep, IRAS is even offering an incentive for whistle blowers. Whistle blowers can get a reward of 15% of the taxes recovered, capped at a limit of $100,000.
Now that IRAS has come out to make it clear that 99-to-1 TIC is illegal, then what are some other ways that homebuyers can use to save money?
One way is to do it the legitimate way, i.e. decouple. Decoupling is totally legal. The only caveat is that you and your spouse needs to have enough earning power to finance the property that you are going to own.
The other way is to be smart about your mortgage. Did you know that a 1% difference in interest rate (i.e. 3% vs 4%) can mean a difference of $160,000 in interest paid to the bank? That’s right. The total cost of home ownership at a 3% interest rate for a $1m property will cost you $1.422m in 25 years’ time. At a 4% interest rate, it goes up to $1.583m.
Just by refinancing your mortgage in a timely fashion can help you to save big on your total cost of home ownership!
Need help saving for your next home? Reach out to us at Moneyline.SG and we will do our best to help you. Moneyline is ready to help you find the best home loan deal so that you can save big!