What is Decoupling | Save $100k with this Strategy

This video blog is going to help you save over $100K and answer the top 3 questions commonly asked about decoupling

I’m sure many of you have heard of decoupling before, but do you know what is decoupling and how it actually works? And why it can potentially help you to save up to $100,000 from stamp duties

📌 Decoupling only works for private properties

When we talk about the decoupling, we have to understand that it only works for private property. This is because , since April 2016, HDB has “banned” decoupling.

📌 What are the benefits of decoupling?

In essence, it is the transfer of 1 co-owner’s share to the other. The common parties involved are

(1) Husband and wife

(2) Siblings

(3) Parents and child

To put it simply, after decoupling, the outgoing party will then no longer have a property under his or her name, and thus be able to save on the Additional Buyer’s Stamp Duty (ABSD) when buying their second investment home.

Let’s do recap on what is the current ABSD rates (refer table).  As you can see from the table, ABSD for citizen’s second property is a hefty 12% ABSD, that’s quite a lot of money. For a 1 million dollar property, 12% will be $120,000.

📌 Let’s do a case study to illustrate this example

Case: Assume a $1 million property with an existing loan of $500k. Both spouses are equal share owners

📌 [SAVINGS]

If you decouple and go on to buy a second property, you will save on the additional buyer stamp duties or ABSD. Based on a $1 million property, that’s about $120,000 savings

Without any kind of hard calculations or just simply looking at the figures in the table, you can tell it’s a 6-figure savings. So, I usually tell my clients that you don’t have to go deep into the calculations, 12% tax savings is a lot of money. As such, it always makes sense to decouple, whenever feasible.

📌 [COSTS]

There are 2 main costs.

• Buyer stamp duty (based on the 50% share)

When you decouple, the stamp duty payable is only based on the 50% share owned by out-going spouse. That means you don’t pay stamp duty based on the entire property value.

• Legal Fees

The estimated legal fee for conveyancing is about $6,000.

📌 Top 3 Questions for Decoupling

When it comes to decoupling, there are a lot of questions on everyone’s mind. Let’s touch on the top 3 commonly asked questions

📌 Q1: Can I save on buyer stamp duty by selling below market prices to my spouse?

The very simple answer is No, because you are required to do a valuation report to determine the property value. I always joke to my clients that if you think you’re smart, the government is smarter than you because this stamp duty is based on this valuation report or the sale price, Whichever higher.

📌 Q2: Can I give away my share to my spouse or child i.e., transfer by gift?

For HDB, it will not be possible except for special cases e.g., financial hardship or divorce cases. For private condos, yes, it can be done, provided there is no existing loan and no CPF is utilized for that property.

One key point to highlight is that, property owners overlooked the fact there’re still outstanding loan or CPA used for the property when they want to gift them to their spouse or child. You can’t just give away your CPF to your next of kin, when you’re still alive.

📌 Q3, After decoupling, when can I buy my second property without incurring ABSD?

Upon signing the Sales & Purchase agreement at the law firm, you can immediately go and buy a second property on the same day

📌 Summary

Decoupling is done when couples are really to buy their second property.

Things to Note:

• For buying spouse – Ensure you have enough cash or eligible for the loans required to buy over the share

• For the outgoing spouse – You have to know what property to buy next & check your loan eligibility

I will suggest to proceed with decoupling only when you’re ready to buy the second property. This is because the lead time required to execute decoupling is actually very fast.

Both decoupling and 99-1 can help you to save over $100K on stamp duties. But what is their similarity and difference?

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