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Taxes for Residential Property Acquisition And Ownership

INSIGHTS invited RSM Tax Pte Ltd to share the tax considerations to look out for in the purchase and ownership of property.

Buying a residential property is a major decision. For most, it is a deliberated move that involves careful considerations predominantly in the areas of pricing and financing. However, with the increasing direct and indirect tax law changes, tax cost is also a growing concern for many potential buyers before they commit to purchase a property. It is therefore important that one is well informed of the tax implications that come with acquiring and holding properties in Singapore.

Property Acquisition

One of the major tax burdens at the onset of property acquisition in Singapore is stamp duty. Stamp duty is a tax that is levied on the duly signed legal document when you acquire a property located in Singapore.

  • Stamp Duty

The buyer’s stamp duty (“BSD”) is applicable for documents executed for the purchase of immovable property located in Singapore, regardless of the nationality of the buyer or the number of properties he/she currently owns in Singapore.

The BSD is based on the purchase price or market value of the property, whichever is higher. The BSD rates for residential properties are progressive, starting from 1% for the first S$180,000, 2% for next S$180,000, 3% for next S$640,000, and 4% for the remaining amount of the purchase
consideration.

  • Additional Buyer’s Stamp Duty

As part of the property cooling measures, in Singapore, additional buyer’s stamp duty (“ABSD”) calculated based on the higher of the purchase price or market value of the property acquired may be payable by buyers in addition to the BSD payment.

The ABSD rates for individuals purchasing residential properties vary, depending on the profile of the buyer concerned. For instance, a Singapore citizen who buys his second residential property will pay ABSD at 12%, and 15% if the property is his third or subsequent purchase. As for a Singapore permanent resident, the ABSD rate is 5% for the first acquisition, and 15% for all subsequent purchases. Foreigners buying any residential property needs to pay 20% ABSD.

Due to the relatively high rate levied, in addition to BSD, ABSD has a dampening effect on property acquisition decision for many buyers, especially those who already owned residential properties.

Property Ownership

Depending on the usage of the acquired residential property, there could be different tax implications.

Owner-occupied Property:

  • Property tax

Property tax will be levied, regardless of whether the property owner lives in it or leases it out. For owner-occupied properties, lower property tax rates, ranging from 4% to 16%, apply. However, the lower property tax rates only apply to one residential property. 

The tax payable is computed on the annual value of the property at the appropriate property tax rate.

  • Non-tax deductible expenses

For properties that do not generate any rental income, the expenses incurred, such as mortgage interest, property tax and insurance, in respect of the properties would not be tax deductible.

Property on Rental:

  • Property tax

Non-owner-occupied residential property tax rates, which are higher than owner-occupied rates, apply. The property tax rates are progressive, ranging from 10% to 20% of the annual value of the property.

  • Rental income and expenses

Income derived from property rentals is liable to tax. Certain expenses incurred in respect of the rented property are tax deductible. Income tax is only payable on the net rental income (i.e. gross rentals less deductible expenses) earned. 

The generally allowed deductible expenses are mortgage interest, property tax, fire insurance, repairs and maintenance, and agents’ fees for securing replacement tenants. Property owners are expected to retain relevant invoices and receipts in support of their expense claims made for
a period of five years.

To simplify tax filing and reduce the burden of record keeping, property owners may opt to claim tax deduction for rental expenses incurred based on a deemed rental expense amount, which is calculated based on 15% of the gross rentals received. In addition to this deemed rental expense deduction, mortgage interest incurred for the rented property may still be claimed as a separate deduction.

Property Disposal

  • Seller’s Stamp Duty

Seller’s stamp duty is payable on all residential properties and residential lands that are bought on or after 20 February 2010 and sold within a specified holding period.

  • Gain Derived from Property Disposal

Singapore does not have capital gains tax regime. This means that capital gains derived from property disposals will not be taxed in Singapore. However, gains or profits of a revenue nature are still subject to tax.

As to whether a particular property disposal gain is capital or revenue in nature, a number of factors surrounding the disposal or leading up to the disposal would have to be examined and taken into consideration in making that determination.

It is important for both potential buyers and existing property owners to be aware of their own tax situation and the issues that may affect them, so that they can anticipate the expected tax cost involved or the outcome.

Article contribution by RSM Tax Pte Ltd. Part of the RSM Group, RSM Singapore is the largest accounting, business advisory and solutions group outside the Big 4 in Singapore that offers Audit, Tax, Corporate Advisory, Risk Advisory and Business Support Services.