DECOUPLING WLAW LLC What is decoupling One owner

DECOUPLING WLAW LLC

What is decoupling? • One owner transferring his share in the property to the other owner such that he/she will no longer be the owner of the property. • A common example is where a spouse transfers his/her share to the other spouse, making one spouse the sole owner of the property. • Decoupling is possible for both private properties and HDB flats.

EXAMPLE BEFORE DECOUPLING AFTER DECOUPLING Husband wife joint owners of the property. Property in wife’s/husband’s sole name.

Why decouple?

Why decouple? ADDITIONAL BUYER STAMP DUTY • Additional Buyer Stamp Duty is payable by: 1. Singapore Citizens and Singapore Permanent Residents buying the second and subsequent residential properties. 2. Foreigners buying residential properties in Singapore. • By decoupling, the outgoing owner of the property can purchase another property without having to pay ABSD or paying lesser ABSD. • Note that ABSD only applies to residential properties. • Buyer Stamp Duty continues to apply and ABSD applies in addition to the prevailing Buyer Stamp Duty rates.

WHO TRANSFERS? • Spouses often decide to ‘decouple’ so that one spouse purchases a subsequent property without being subject to ABSD/ subject to a lower ABSD rate. • Therefore, the spouse who will be subject to a lower stamp duty rate should be the outgoing owner. • There may also be couples who hold the property in unequal shares (tenants-in-common). In such cases, it may be wise for the owner with a lesser share in the property to be the outgoing owner.

WAYS OF DECOUPLING 1. TRANSFER BY WAY OF GIFT 1. PART SHARE SALE

TRANSFER BY WAY OF GIFT

TRANSFER BY WAY OF GIFT • Transfer by way of gift is where one owner transfers his share of the property to another on the grounds of love and affection, without monetary consideration. • Only advisable where the property is not subject to a Mortgage or a CPF Charge. • Stamp Duty is still payable even if the transfer is made by way of gift.

PROCESS TRANSFER BY WAY OF GIFT Is there an existing bank loan/ CPF Charge? YES Able to discharge CPF Charge or redeem Mortgage? NO Transfer by way of Gift Advisable (Property unencumbered)

PROCESS Able to discharge CPF Charge or redeem Mortgage? YES If redeeming mortgage, serve redemption notice. If there is a CPF Charge, the Charge must be discharged. Transfer by way of Gift Advisable (Property unencumbered) NO The Bank/ CPF Board will unlikely consent to the Gift Transfer. Consider Part Share Sale

PROCESS • Note that transfers by way of gift is advisable only where the property is encumbered, i. e. No existing mortgage/ no CPF Charge. • If the outgoing owner of the property intends to make a transfer by way of gift, the mortgage should be redeemed and all CPF monies refunded. • As stamp duty payable will be based on the market value of the property, valuation of the property is still required.

PROCESS - E-STAMPING

BANKRUPTCY ACT • A transfer by way of gift is also a transaction at an under-value. • The Bankruptcy Act will apply. • Under s 98(2) of the Bankruptcy Act, the court may ‘restore the position to what it would have been if that individual had not entered into that transaction’ if the outgoing owner becomes bankrupt 5 years from the transfer. • The transfer may be VOIDABLE. • It is therefore important to ensure that the outgoing owner is financially stable. It is also equally important for the co-owners to understand the risks and implications of transferring ownership by way of a gift.

CASE 1 Background • Private Property • Husband transferring to Wife by way of gift • Existing CPF Charge Brief outline of the work done by the Solicitors • Drafting and executing a Deed of Gift. • Letter to CPF Board seeking their consent to the gift transfer and also stating that the donor is aware that he/she has to make a full refund of the monies withdrawn from his/her CPF account. • CPF Board may then require a confirmation that the owners of the property have been properly advised of the legal implications of the gift transfer. • CPF Board will also require the donor to make a statutory declaration that he is solvent at the time of the transaction and would not be insolvent as a result of the gift transaction.

PART SHARE SALE

PART SHARE SALE • Where one owner sells his share in the property to another coowner for consideration. • The purchase/sale price will be based on the valuation of the property. • Example: X and Y co-own Property A and valuation of the Property A is at $1 m. If X were to sell his share in Property A to Y, the selling price will be $500, 000. • This is advisable where the property is subject to an existing mortgage or CPF Charge.

PROCESS PART SHARE SALE Is there an existing bank loan/ CPF Charge? YES 1. Sale and Purchase Agreement – The Deposit (usually 5%) is paid to the seller directly. 2. Serve a Notice of Redemption to the Bank 3 months before completion date. (***Take this into account when deciding on completion date!) 3. Or if there is a CPF Charge, to discharge the CPF charge wholly or partially. 4. Stamp Duties will be payable. 5. Valuation of the property. NO An alternative to a gift transfer. Key parts to the process: 1. Stamp Duties payable. 2. Legal Fees 3. Valuation of the property

PROCESS Is financing required for the Part Share Purchase? NO Ready for Completion YES Part Share Purchaser may opt to: 1. Refinance the loan with the existing Bank; or 2. Obtain financing from another Bank. ***In BOTH situations, both the part share purchaser and seller MUST be represented by different law firms.

PROCESS IMPORTANCE OF THE VALUATION PRICE OF THE PROPERTY: • Recall the provisions of the Bankruptcy Act. • If property is sold at a price below the valuation price, then the Bankruptcy Act applies (as in the case of a transfer by way of gift). • Where these provisions apply, the transaction is voidable if the seller becomes bankrupt within a 5 year period from the date of the transaction. • Carrying out the part share sale in accordance with the valuation price thus prevents the provisions of the Bankruptcy Act from applying.

CASE 2 Background • Condominium • Selling price ½ of Valuation price • Existing mortgage and CPF Charge Brief outline of the work done by the Solicitors • Drafting and executing Sale and Purchase Agreement. • Serving Notice of Redemption to the existing Mortgagee and obtaining an estimated redemption statement. • Obtaining the valuation report. • Applying for CPF usage on behalf of the part share purchaser. • Partial discharge of CPF Charge. • Obtaining the final redemption statement on completion. Redemption of the existing loan will usually be split between the part share purchaser and the seller.

HDB DECOUPLING

TRANSFER BY WAY OF GIFT • Generally, ownership of an HDB flat can only be transferred by way of a gift. • The process of transferring ownership by way of gift is generally similar to that for private properties except that the donee must be an eligible person defined by the Housing Development Board. • Sample Application Form available on HDB’s website: http: //www. hdb. gov. sg/cs/infoweb/residential/living-in-an-hdbflat/changing-owners-occupiers/transfer-of-flatownership/application-form

Guide from HDB’s website

PART SHARE SALE • Resale part share is not allowed between married couples or where the purpose of the transaction is solely to include another family member as a co-owner of the flat. • In the case of a divorce, a co-owner of the property may choose to buy his/her ex-spouse’s share of the flat by way of a part-share sale ONLY if he/se meets the eligibility criteria and the divorce is finalised after meeting the Minimum Occupation Period of the flat. • In the case of a part share sale of an HDB flat, the selling price is at a mutually agreed price, rather than based on the valuation price in the case of a private property.