In Singapore, a house is not just a home but also a popular choice for long-term investment. Many parents hope to secure a property for their children’s future by purchasing it through a trust, hedging against inflation and using this mechanism to provide optimal asset planning for their children, paving the way for their future.
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Why Choose to Buy Property Through a Trust?
Under Singapore law, individuals under the age of 21 cannot independently own private property. Through a trust, parents can act as trustees to hold the property, while the child, as the beneficiary, enjoys the beneficial interest. This method not only secures the child’s future assets but also effectively isolates them from risks of debt or litigation—after a 3-year look-back period, parents’ creditors cannot claim the trust property.
ABSD (Trust) Remission Conditions (Must be Met Concurrently)
Effective from April 27, 2023, a 65% Additional Buyer’s Stamp Duty (ABSD) must be paid upfront when a residential property is transferred into a living trust. However, if all the following conditions are met, a partial or full remission can be applied for, based on the beneficiary’s status:
1. The Beneficiary Must Be an Identifiable Individual
- The beneficiary of the trust can only be an existing natural person.
- For example, it cannot be an unborn child.
2. Ownership of the Property Vests Immediately in the Beneficiary
- When the property is transferred into the trust, the beneficiary must immediately acquire beneficial ownership without any delay or additional conditions.
- For example, you cannot stipulate that “the child will own the property only after turning 21.” The trust must explicitly state that ownership is effective immediately.
3. Ownership Must Be Irrevocable and Unchangeable
- The trust terms must not reserve the right to modify the beneficiary or reclaim the property. Once established, parents cannot unilaterally change the beneficiary’s interest.
- For example, a clause like “parents can reclaim the house if the child is unfilial” is not allowed.
4. Submit the Remission Application Within 6 Months
- The trustee must submit the remission application to the Inland Revenue Authority of Singapore (IRAS) within 6 months of paying the 65% ABSD.
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How is the Remission Amount Calculated?
Remission Amount = ABSD Paid (65%) – ABSD Rate Applicable to the Beneficiary
- For example, if the child is a Singapore Citizen or a US citizen (who enjoys the same treatment), no ABSD is payable, and the full 65% can be refunded. If the child is a Singapore Permanent Resident (PR), a 5% ABSD is payable, so 60% (65% – 5%) can be refunded.
Key Practical Points for Buying Property Through a Trust
1. Funding Requirements
- Pay 65% ABSD + 3-6% Buyer’s Stamp Duty (based on property price).
- Must be paid in full with cash; Central Provident Fund (CPF) or bank loans cannot be used.
⚠️ For new launch properties, payments can be made in stages, so the full amount is not required upfront.
2. Trustee’s Responsibilities
- Parents, as trustees, must manage the property. If it is rented out, the rental income belongs to the child.
3. Property Type Restrictions
- Only private residential property can be purchased.
Frequently Asked Questions
• When is the trust property transferred to the child?
You can specify an age or condition in the trust (e.g., upon turning 21), at which point legal ownership is automatically transferred.
• Can the trust property be mortgaged for a loan?
No, a mortgage or home loan cannot be taken out, as the nominal owner of the property is the child.
• How long does the tax remission process take, and when will the refund be received?
Most remission applications will be processed within two months of submitting the complete documentation. Once the application is approved, the refund will be issued within one month of approval. Based on my past clients’ cases, the tax refund is typically received within about 2 to 6 months.
• If the trust property is rented out, how are property tax and rental income tax calculated?
If income is generated, it is considered the statutory income of the trustee and is taxed at the parents’ personal income tax rate.
• After buying a property through a trust, when can it be sold?
According to Singapore’s Bankruptcy Act, creditors have the right to claim assets from a newly established trust for a period of 3 years. Therefore, the property can generally only be sold after the trust has been established for 3 years. In other words, a buyer purchasing a property under a trust within this 3-year period would face significant risks, and banks will not provide financing for such transactions. Consequently, buyers are only willing to purchase after the three-year creditor claim period has passed.
• If I want to sell the property before my child turns 21, are there any special considerations?
If you wish to sell the property before the child turns 21, there must be at least two trustees (e.g., both the father and mother).
• What are the legal fees for buying a property through a trust?
Legal fees for buying a property through a trust are typically between S$8,000 and S$10,000. This includes the conveyance fee and the cost of drafting the trust deed. The specific fee depends on the property type and price; the higher the property price, the higher the legal fees.
• The upfront costs of buying a property through a trust are too high. Are there other ways to reduce the burden?
I would recommend purchasing a new launch project, as payments can be made progressively according to the construction schedule. You can also use the refunded tax amount to pay for subsequent installments.
Purchasing property for children through a trust is a long-term strategy that combines asset protection with tax optimization. By fully utilizing Singapore’s trust mechanism, you can lay a solid financial foundation for the next generation and facilitate family legacy planning.
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