How to do 99-1 the legal way

In recent news, Singapore’s real estate market has faced scrutiny for creative ownership tactics like the 99-1 property ownership scheme, which recently led to fines and legal consequences for over 160 buyers. Understanding property ownership structures—whether it’s joint tenancy or tenancy in common—is essential, especially for those looking to optimize their investments without falling afoul of the Inland Revenue Authority of Singapore (IRAS).

Here’s a closer look at these ownership forms, how they impact estate planning, tax liability, and strategies like decoupling to help you make informed choices while staying fully compliant.

1. Understanding Property Ownership in Singapore

When buying property in Singapore, co-owners can choose between joint tenancy and tenancy in common. Each has unique implications for inheritance, estate planning, and tax liability, so it’s crucial to understand the differences.

Joint Tenancy

Under joint tenancy, two or more people own the property equally. This means:

• Each owner has an undivided interest in the property.
• Upon the death of one owner, ownership automatically transfers to the surviving co-owner(s), regardless of any will the deceased may have created.

For example, if Owner A and Owner B jointly own a property and Owner A passes away, Owner B automatically inherits the property in full. Joint tenancy is commonly chosen for matrimonial homes, as it ensures that the surviving spouse gains full ownership without needing to navigate complex legal processes or depend on inheritance laws.

Tenancy in Common

Tenancy in common allows each owner to own a specific share of the property, which can be divided in any proportion, such as 50:50, 90:10, or even 99:1. Here’s how it works:

• Each owner can specify their share of the property.
• If one co-owner dies, their share is distributed according to their will. If no will exists, inheritance rules apply, and the deceased’s share might go to their family members, such as parents or children, instead of the co-owner.

For example, if Owner A and Owner B hold a property in a 50:50 split and Owner B passes away without a will, Owner B’s 50% share would be distributed based on inheritance laws, potentially dividing it among other heirs instead of going fully to Owner A.

2. The 99-1 Ownership Structure and Why It’s Risky

The 99-1 property ownership method has gained attention due to its use in reducing tax obligations. Here’s the idea:

1. Owner A purchases a property in full.
2. Owner A then sells a minimal 1% share to Owner B (who might already own another property or be a foreigner).

This setup, often called the 99-1 split, was commonly employed to reduce Additional Buyer’s Stamp Duty (ABSD) obligations. If Owner B were to buy a second property outright, they’d face a substantial ABSD—up to 20% if they’re a Singaporean and 60% for foreigners on a $1 million property. In contrast, the ABSD on a 1% share in a 99-1 ownership structure would be negligible.

Why IRAS Considers This Tax Evasion

While this approach appears financially savvy, it’s viewed by IRAS as a tax avoidance scheme because the intent is to minimize ABSD through partial ownership. In recent cases, IRAS has penalized buyers who used this method, with fines reaching up to $60 million collectively. To IRAS, such tactics demonstrate an intention to avoid tax obligations, which constitutes tax evasion under Singaporean law. You can read more about a specific case where a mother and son faced charges for using the 99-1 property scheme here.

3. Alternative Strategies: Decoupling Ownership

For couples looking to own property together while preserving eligibility for a second purchase, decoupling through tenancy in common is a more compliant approach.

What is Decoupling?

In decoupling, one owner buys out the other’s share, leaving one individual with full ownership and the other free to purchase additional property without facing ABSD on the first property. Here’s how it generally works:

1. Owner A and Owner B purchase their first property with a 90:10 split under tenancy in common.
2. Later, Owner B sells their 10% stake to Owner A when they have sufficient funds.
3. Owner B’s name is cleared from the first property’s ownership, enabling them to purchase a new property in their name without triggering ABSD for owning a second property.

CPF Considerations in Decoupling

Another factor to consider in tenancy in common and decoupling is Central Provident Fund (CPF) usage. CPF rules stipulate that if both owners use CPF funds for the down payment or mortgage, each owner’s CPF Ordinary Account will accrue an interest claim upon sale. By purchasing property under tenancy in common with a 90:10 split, CPF usage can be allocated in proportion to ownership shares, simplifying CPF reimbursements and minimizing financial entanglements if decoupling occurs later.

4. Choosing the Right Ownership Type for Your Situation

Deciding on the right ownership type is a balancing act between personal needs, estate planning, and financial planning. Here’s a breakdown of situations where each type might suit different needs:

• Joint Tenancy: Ideal for couples who want seamless inheritance transfer, especially for matrimonial homes.
• Tenancy in Common: Suitable for property investors and those planning to use decoupling for future investment opportunities, as well as for those who wish to retain flexible estate planning options.

5. IRAS Compliance and Long-term Property Planning

With the recent crackdown on the 99-1 ownership scheme, it’s essential for buyers to consider legal alternatives that optimize their finances without raising compliance concerns. Although joint tenancy and tenancy in common offer flexibility, IRAS expects transparency regarding ownership intentions and tax obligations.

For those planning multiple property investments, decoupling can provide a compliant path forward while safeguarding eligibility for future property purchases. By consulting with property professionals and financial advisors, buyers can develop ownership plans that align with both personal and legal guidelines.