The risk of buying properties in someone else’s name

You should never use a proxy to buy properties just to save on taxes, because doing so will definitely cause you to lose a lot more later.

As all property transactions are now recorded online, the taxman can easily spot suspicious transactions and signs of tactics commonly used by property investors to save on additional buyer’s stamp duty (ABSD).

The clampdown on the now infamous “99-to-1” cases is a good example of how the Inland Revenue Authority of Singapore can easily catch offenders.

In such transactions, the original buyers transfer a 1 per cent stake to a relative, such as a parent, who must have a share to apply for bank loans.

As every property transaction is taxable, making unusual and small transfers is practically an invitation to the taxman to investigate.

This is probably how two women were caught when they bought a $3 million property.

One woman originally signed the deal on her own, but later transferred 1 per cent of the property to the other woman, whom she regarded as her godmother.

She also signed an agreement stating that the godmother, who paid the down payment and bank mortgage, was the property’s true owner.

Existing home owners caught using sham arrangements to buy additional properties, like the godmother in this case, end up losing more as they have to pay the ABSD due plus a 50 per cent surcharge.

Here are two other buyers who discovered the perils of using others to hold homes for them.

Mother cannot sell young son’s property

Before ABSD was imposed on trust properties in May 2022, some parents would buy properties in their children’s names. But doing so means that the homes would belong to the kids and not the parents.

For instance, a woman put a $2 million apartment in a trust for her six-year-old son. She later wanted to sell it when the value of the property went up by about $500,000. But the High Court rejected her request to sell as she could not prove the sale would benefit her son.

Even if such sales are approved, parents cannot use the sales proceeds for themselves, and the funds must be deposited in a separate bank account for the trust beneficiaries.

Parents who disregard such rules can be taken to task for using a sham scheme to avoid paying ABSD and will be liable for the duties due as well as a further 50 per cent penalty. Depending on the seriousness of the case, this penalty can be increased to up to four times the payable duty.

Father wants to reclaim son’s property

A man bought a $5 million home on trust for his son with the sales proceeds of his other properties. But about a year later, the father’s marriage broke down and headed for a divorce.

The adult son then applied to the court to have the trust terminated so that he would become the legal owner with immediate effect.

However, his father argued that the asset was his all along, as the trust was a sham set up to avoid paying the ABSD.

But the High Court ruled that the trust was not a sham because the evidence showed that the father had intended to give the property to his only son.

To do so, he had engaged a lawyer to help set up the “irrevocable” trust for his son, and he would have been advised that it would not be possible for him to stake a claim to the property.

In the end, the court ordered the trust to be terminated and the home transferred to the son.

As the buyers in these cases already own properties, they should do their sums properly and consider whether it is still worth investing in another property if the arrangements they use put them at risk of losing more later.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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