What is 99-1 tenancy in common and how can it help you when decoupling ?

99-1 tenancy in common

Table of Contents

Introduction

The fact that you landed on this article, it is safe to assume that you have been reading up on decoupling property and are eager to find out more about how you can purchase your second property while legally avoiding ABSD.

In your course of research, you will definitely come across the term 99-1 tenancy in common or its synonymous reference 99-1 decoupling.

Focus for this article

In this article, we will cover everything you need to know about 99-1 tenancy in common, tie its use case specifically back to decoupling and finally highlight key pointers you need to take note of when applying 99-1 tenancy in common when decoupling.

A little bit about ourselves

If this is the first time you read our articles, allow us to introduce ourselves.

We are a team of real estate investors turned full time realtors. We specialise in decoupling properties, helping like minded property owners find the optimal way to own their second property without ABSD.

Our articles were written based on knowledge we have accumulated working on our own property portfolio and also our experience in helping over 89 fellow property owners own their second property till date.

If reading is not your thing, feel free to drop us a text and we will be happy to clarify any doubts you have with regards to property decoupling.

Tenancy in common as a form of manner of holding

In order to set the backdrop for you to understand what is 99-1 tenancy in common, it is important to first understand what is the manner of holding.

Manner of holding refers to the structure that you adopt to govern the property share ownership between you and your joint owners, which in most cases is your spouse.

There are generally two type of manner of holding joint tenancy and tenancy in common.

At the completion phase for the property purchase process, your conveyancing lawyer will ask you what manner of holding you prefer. By default you will be recommended joint tenancy if you do not specify that you would like to adopt tenancy in common.

For more insights on the difference between joint tenancy vs tenancy in common, refer to the link in line.

As a quick summary, tenancy in common is the go-to shareholding structure for investors. It allows the allocation of share between joint owners in specific proportion, i.e 60-40, 80-20, 99-1 etc. As compared to joint tenancy which only allows an equal ownership of property between joint owners.

What is 99-1 tenancy in common ?

99-1 tenancy in common, is the adoption of the tenancy in common shareholding structure with a share allocation of 99% for one party and 1% for the other party.

The 99-1 share allocation split is intentionally structured to maximise cost savings from buyer stamp duties incurred during the decoupling process.

Under the default 50-50 joint tenancy shareholding structure, a couple would have to incur buyer stamp duty on 50% of the share value to be transferred to the other party.

Where else under the 99-1 tenancy in common structure, stamp duty is only levied on the 1% share to be transferred.

We will dive into further details regarding 99-1 joint tenancy and its benefit with regards to decoupling in the sections that follows.

The benefit of 99-1 tenancy in common

There are generally three key reasons that motivates property owners to adopt the 99-1 tenancy in common shareholding structure.

Plans to decouple in the future

For savvy property owners that have made plans to decouple and purchase their second property in the future, adopting a 99-1 tenancy in common shareholding structure will provide significant savings in buyer stamp duties.

What is decoupling ?

For those that are uninitiated, decoupling is a method that property owners utilise to facilitate the purchase of their second investment property without ABSD.

Decoupling work by freeing up one party’s name from a property jointly owned by a couple. It is accomplished through the internal sale of shares from one party to the other.

The party that has transferred share to the other party, will be deemed a first time property owner and can purchase the second property without ABSD.

Cost savings when applying the 99-1 tenancy in common structure.

As described in section above, in the usual 50-50 joint tenancy shareholding structure, buyer stamp duty would be levied on the 50% share that is being sold from one owner to the other.

Using a 1.6mil private property as an example.

Buyer stamp duty would be levied on the 50% shareholding, valued at $800,000, amounting to $18,600.

Where else under the 99-1 shareholding structure, buyer stamp duty is only levied on the 1% share, amounting to $160.

Comparing the two shareholding structures, 99-1 tenancy in common provides a cost savings of $18,440, over the 50-50 joint tenancy structure.

Ease of financing the current property

Relating to the purchase of the current property, instead of purchasing the property under 1 name with a sole 100% ownership, the 99-1 share split allows the both parties income to be taken into consideration when applying for a mortgage.

This facilitates a larger maximum loan quantum and reduces the amount of cash and CPF payment required to finance the property.

Allows both parties CPF to be utilised.

Aside for a larger loan quantum mentioned above, the 99-1 share split also facilitates the use of both parties’ CPF in the purchase of the property.

This further reduces the amount of cash required for the purchase of the property.

Factors to note when adopting the 99-1 tenancy in common structure for decoupling.

While the 99-1 tenancy common structure comes with several benefits, below are some pointers to take note of when adopting the 99-1 tenancy in common structure for decoupling.

Balancing the cpf utilised and the share ownership of the minority shareholder.

When decoupling a property, the “leaving party” that is selling share to the “staying party”, would have to return all the CPF previously utilised in the purchase of the current property, together with accrued interest back to his or her CPF OA account.

Using the same $1.6 mil private property example.

The “leaving party” would only be receiving sale proceeds of 1% on the $1.6 mil property for his minority 1% shareholding, this amounts to a sales proceeds of only $16,000.

Under the situation whereby the party that is selling his or her share has initially utilised a significant amount of CPF when purchasing the property, for example, $100,000 worth of CPF. There will be a need to refund the entire $100,000 cpf with accrued interest back to his or her OA account.

The shortfall between this amount and the $16,000 sales proceeds from decoupling, marks the amount that needs to be covered by cash.

This is a situation often known as negative cash proceeds from decoupling.

To avoid such a situation, it is advisable for the party that is taking up 1% share to utilise the minimum amount for CPF, for the case of a 1.6 mil dollar property, the CPF utilised should not exceed $16,000.

Issue of trust when structuring the 99-1 ownership

When structuring a 99-1 tenancy in common structure, there is always an issue of trust for the 1% minority shareholder.

Assuming the case where by a couple who contributed equally in financing the purchasing of the property but adopting a 99-1 share ownership structure, the 1% shareholder would have concerns of the possible repercussions in asset distribution, if the relationship did not turn out well in the future.

Is the 99-1 tenancy in common and decoupling 99-1 legal ?

Some concern may have arisen with the reporting of IRAS investigation into cases of tax avoidance involving 99-1 ABSD loophole.

To ease your concern, adopting a 99-1 tenancy in common structure and decoupling it in the future is not deemed illegal.

The 99-1 decoupling cases that have been singled out for investigation entails a entirely different approach with specific intent to avoid ABSD at the onset.

We have written a separate article detailing the 99-1 ABSD loophole and its legality.

For updates on latest news coverage regarding IRAS 99 1 investigation and how it differs from 99-1 tenancy in common, refer to article link inline.

How to ensure legitimacy when decoupling a 99-1 tenancy in common ?

From our experience, working with multiple clients to decoupling their property, the key to ensuring a legal decoupling process is to ensure a proper arm’s length payment trail and flow of funds between both parties.

In short, payment between spouses should be made via cashier’s order issued from individual bank accounts instead of joint accounts, similar to how you would purchase a property from an unrelated party.

Can you switch from joint tenancy to 99-1 tenancy in common mid way ?

A common question that most readers would have is that assuming you have already adopted a 50-50 joint tenancy structure is it possible to switch to a 99-1 tenancy in common ?

The short answer is yes, you can technically do so. But it will incur cost in the form of legal fee and buyer stamp duty. As any share transfer process will result in the levying of buyer stamp duty and legal fee.

Implication of 99-1 tenancy in common in the unfortunate event of a divorce

A potential concern for the minority 1% shareholder would be, in the event of an unfortunate divorce, will be allocated only to 1% shareholding, despite a proportionately higher contribution financially ?

To find out more about this, refer to our dedicated article on “What happen if divorce after decoupling property“.

Can you still decouple if you have not adopted a 99-1 tenancy in common structure ?

Yes, you can still decouple even though you have not adopted a 99-1 tenancy in common structure. In fact, most property owners decouple with a 50-50 joint tenancy structure, the only drawback is the slightly higher buyer stamp duty incurred in the process of decoupling.

If you would need help calculating the cost to be incurred in decoupling, feel free to drop us a text and we will send across a detailed financial calculation for your decoupling plans.

Final Words

This marks the end of our article. We hope this article clarifies your doubts with regards to 99-1 tenancy in common and equip you with the knowledge to take the next steps in decoupling.

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.