Decoupling of Property: Key Financial Considerations

The concept of decoupling property ownership has gained traction, especially among married couples seeking to optimize their financial strategies. Decoupling involves one spouse transferring their share of a jointly owned property to the other whether by a gift or a sales and purchase. This enables the outgoing owner to purchase another property without incurring the additional buyer’s stamp duty (ABSD) imposed on second and subsequent property purchases. While the advantages are clear, there are several financial aspects that must be carefully considered to ensure compliance with legal requirements and to manage the associated costs effectively. Here, we outline the critical payments and procedures involved in the decoupling process.

Stamp Duty

Stamp duty is a significant financial obligation in the decoupling process. When one spouse transfers their share of the property to the other, the transaction is treated similarly to a property sale, thereby attracting buyer’s stamp duty (BSD). The BSD is calculated based on the market value of the transferred share of the property. For residential properties, the BSD rates are tiered in accordance with the value of the share of the property that will be purchased. Depending on the profile of the buyer, ABSD may be payable as well.

Understanding and accurately calculating the stamp duty is crucial to avoid underpayment penalties or legal complications.

Valuation Report

A professional valuation report is essential in determining the fair market value of the property at the time of transfer. This report must be prepared by a licensed valuer and serves as the basis for calculating the stamp duty and ensuring that the transaction reflects the true market value. The cost of obtaining a valuation report can vary, and it is an expense that both parties need to account for in their financial planning. Valuation report fees range from $300 to $600.

Valuation reports are very important. If there are any issues with the stamp duties payable, the valuation report will be submitted to the relevant government authorities.

Seller’s CPF Monies and Accrued Interest

When decoupling a property, the seller (the spouse transferring their share) must refund the amount used from their Central Provident Fund (CPF) savings, including the accrued interest, back into their CPF account. This requirement ensures that the seller’s CPF funds are restored to their original state as if they had not been used for the property purchase. It is important to request a statement from the CPF Board to determine the exact amount that needs to be refunded, which can impact the seller’s liquidity and overall financial planning.

The mode of payment to the seller’s CPF account can be made from the buyer’s CPF account (if there are adequate funds in the buyer’s CPF Ordinary Account) or cash.

Bank Penalty and Fees

If there is an outstanding mortgage on the property, the decoupling process may trigger certain bank penalties and fees. These can include early repayment penalties if the loan is repaid ahead of schedule or if the completion is before the interest reset dates (for floating rate mortgages). It is important to check beforehand the expiry date of the mortgage lock-in period, and the interest reset dates (if applicable).

Our lawyers are experienced with decoupling transactions. Contact us at 8780-2499 to seek a fee quote.