Decoupling 99-1 – How does it work and is it legal ?

Decoupling 99-1

Table of Contents

Introduction

Nice meeting you. The fact that you have been searching up the term decoupling 99-1 most probably meant that you are a like minded property owner looking for ways to get your hands on a second investment property.

In this article, we will cover everything you need to know about decoupling 99-1. Specifically we will explain how it works, who it is suitable for, how you can go about implementing it and most importantly how to ensure its legitimacy.

A little bit about ourselves

Given that you are about to commit the next 5 mins of your time reading this article, it helps to know who is writing it.

We are a team of specialist realtors, specialising in decoupling property. Our goal is to help property owners find the best way to purchase their second investment property without ABSD.

This article is documentation of our experience accumulated over the years, decoupling our own properties, helping our clients in over 89 engagements and the experience imparted by working with numerous experienced decoupling lawyers.

Drop us a text if you like clarify any doubts with regards to decoupling or investment properties.

What is decoupling 99-1 ?

Decoupling 99-1 is an enhanced version of the usual decoupling property strategy.

The usual property decoupling approach revolves around decoupling a property that is held with a 50-50 joint ownership structure. Where else decoupling 99-1 seeks to decouple a property that is held in a 99% to 1% share split.

To help those of you that are new to the concept of decoupling and property shareholding structures. We will provide a quick explanation for each of this item in the section below.

For those of you that are already familiar with decoupling, feel free to skip ahead.

What is decoupling property ?

Decoupling property is the go-to strategy for property investors to get their hands on a second investment property without ABSD. It works by “freeing up” one party’s name from a jointly owned property to purchase the second property without ABSD.

It is implemented via an internal sale and purchase process between joint owners, with one party buying over shares from the other.

Mindful of staying focus on the topic of decoupling 99-1, we will keep the discussion brief for now. To find out more about the cost of decoupling, its timeline and risk involved, refer to the complete guide of decoupling property Singapore.

What is 99-1 share split ?

The 99-1 component in the decoupling 99-1 strategy is implemented via a tenancy in common holding structure, established at the onset of your property purchase.

You will need to specify that you would like to adopt this share holding structure when you attend your property completion appointment at the law firm. If not the default option of a 50-50 joint tenancy share holder structure will normally be adopted.

We have separately written a article going into detail comparing the pros and cons of 99-1 tenancy in common vs 50-50 joint tenancy, check out article inline.

Putting it together, Decoupling 99-1 – A two step process

So in essence, decoupling 99-1 is actually a two step process.

  • Step 1) Purchasing a property with a 99-1 shareholding structure
  • Step 2) Decoupling the property down the road, with the 99% share holder purchasing the 1% share. Freeing up one name to purchase another property without ABSD

Decoupling 99-1 is not relevant to you if you fall within the following category of property owner

Mindful of not wasting your time. If you fall into the following category of property owner, decoupling 99-1 is not going to be relevant to you.

HDB flat owners

Unfortunately if you own a HDB flat, decoupling is entirely out of the question.

Since 2016, HDB had tighten its share transfer regulation to only allow share transfer under special circumstances. They are demise of property owner, divorce, health condition, bankruptcy and marriage. Property investing and making money is not one of these special conditions.

But this should not stop you from achieving your goal of owning a second property. Refer to our article on decoupling HDB and alternative solutions via link article link inline.

Existing owners of a private property held under a 50-50 joint tenancy

If you already owned a private property that is held under a 50-50 joint tenancy. It is not advisable to change your existing structure to a 99-1 share holding structure to execute the decoupling 99-1 strategy, as there will be buyer stamp duty incurred in the process.

Decoupling directly under the 50-50 structure would be a much more cost efficient approach.

Decoupling 99-1 would be relevant, if you are planning ahead

So decoupling 99-1 is most relevant for you if you are looking to purchase your first property or if you are looking to upgrade into another property. And you would like to plan ahead for the most cost efficient decoupling process in the near future.

Cost saving – decoupling 99-1 vs decoupling 50-50

The key motivation behind implementing the decoupling 99-1 strategy is the cost saving that comes with it.

The cost components that makes up the cost of decoupling is as follow.

  • Decoupling legal fee – averaging $5,000 to $6,000
  • Early loan redemption penalty – when applicable
  • Valuation fee – averaging $600 to $700
  • Seller stamp duty – prevailing tax rate on valuation of share to be transferred
  • Buyer stamp duty – prevailing tax rate on valuation of share to be transferred

If you noticed both the seller stamp duty and buyer stamp duty is a factor of valuation of share to be transferred. And this is where stamp duty incurred when transferring a 1% share value, differ greatly from the stamp duty incurred when transferring a 50% share value.

Estimating the cost saving when decoupling 99-1

Assuming we were to decouple a property valued at $1.5 mil. Let’s compare the difference in stamp duty incurred between a 99-1 shareholding structure and a 50-50 shareholding structure.

In this example we will assume that decoupling is done after 3 years of property ownership and no seller stamp duty will be incurred.

Buyer stamp duty calculation - decoupling 50-50

Using our decoupling calculator, the buyer stamp duty amounts to $17,100. This is calculated by applying the prevailing buyer stamp duty tax rate on 50% share of $1.5 mil.

On the contrary, when we apply the buyer stamp duty tax rate on 1% share value of $1.5 mil. The buyer stamp duty payable is only $150

This amount to a cost saving of more $16,950.

Buyer stamp duty calculation - decoupling 99-1

Considerations to note when adopting decoupling 99-1

Having discussed the benefits of decoupling 99-1, there are some important consideration that you will need to take note of when implementing it.

1 – Utilise minimal amount of CPF for 1% shareholder

One of the common pitfalls for decoupling 99-1 that we have seen many property owners struggle with, is the issue of negative cash proceeds due to CPF refund.

As part of the decoupling process, the selling party will be required to refund all the CPF utilised, together with accrued interest back into his or her CPF OA account.

Referencing the same hypothetical example of decoupling a $1.5 mil property, held under a 99-1 shareholding structure. The 1% shareholder is looking at a sale proceed of $15,000 after decoupling.

But if he/she have utilised a $100,000 worth of CPF during the initial purchase the property. The selling party would have to refund a additional $85,000 back into CPF OA account after netting off that $15,000 sales proceed.

This would result in a $85,000 cash deficit, which will have a impact on your cash available for the purchase of your second property.

2 – Dealing with the issue of trust

The intangible consideration of trust often arise for the 1% shareholder. Assuming a couple both contributed equally in terms of finances to purchase a property.

But due to the plan of implementing a decoupling 99-1 strategy in the future, one party will only be allocated to 1% share of the property.

This brings about concern for the 1% shareholder with regards to accountability for her financial contribution, under the worst case scenario when a issue occur in the marriage.

Is decoupling 99-1 legal ?

Now let’s discuss the legality of decoupling 99-1.

The 2023’s fiasco revolving around IRAS investigation into what is now known has 99-1 ABSD loophole, has created lots of confusion around the legality of decoupling and decoupling 99-1.

The are no current regulation restricting the structuring of a 99-1 tenancy in common structure nor regulation restricting the decoupling of private property.

In the words of IRAS, what’s illegal are schemes intentionally contrived to avoid taxes.

Referencing one of article on explaining the difference between the 99-1 ABSD loophole and decoupling, we highlighted the difference between decoupling 99-1 and the 99-1 ABSD loophole below.

For updates on latest news coverage with regards to IRAS 99 1 investigation, refer to article link inline.

Signs of illegality – taking reference from IRAS recent investigation

  • Initially purchasing a property under one name without paying any ABSD
  • “Immediately” selling 1% share to another joint owner
  • The joint owner owns a existing property at the time of purchase and should be paying the full ABSD levied on the full value of the property, instead of 1%

Not illegal

  • Purchasing a property under different share split permutation. 99-1, 90-10 or any other permutation.
  • Decoupling, share transfer between joint owners of a private property.

Legal Disclaimer : Please do not take this as legal advice, refer to a qualified legal counsel specialising in decoupling for a formal review of your plans based on your specific circumstances.

How to ensure long term legitimacy in your decoupling 99-1 process

In short, how do we do things right such that everything stays above board, such that we can sleep soundly at night.

From our frequent conversation with our panel of decoupling lawyers. The common pointers revolves doing things that uphold the “true spirit” of a independent buy and sell transaction.

It is important to ensure the following

  • A proper and transparent flow of funds between buying and selling party, with funds flowing in and out of personal bank accounts.
  • Executing transaction using two independent law firm operating at arm’s length

Playing it safe with second opinions

If you are serious about decoupling, it helps to seek some second opinion confirming your current plans.

Drop us a text if you like to re-affirm the legitimacy of your plan

As a side note check out our 7 pointer decoupling readiness checklist for a quick review of whether you are ready to decouple.

More reads, more gains ?

Kudos on making it this far. The fact that you have invested the last 5 mins reading this article. We believe you are a like minded real estate investor looking to beat the rat race by getting more out of your real estate investment.

If so, do check out the following articles.

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.