Introduction

After the Singapore Budget 2022 was announced, an increment in wealth taxes across the board can be observed. In this newsletter, we seek to explore how property tax is calculated, changes in owner’s occupier’s tax rate and when does owner’s occupier’s tax rate apply.

Annual Value – The Basis of Property Tax

Property tax in Singapore serves as a wealth tax on the ownership of the property as opposed to the usage of a property. Unlike income tax, property tax is therefore not dependent on the rental income of your property, but rather the Annual Value (“AV”) of your property as determined by the Inland Revenue Authority of Singapore (“IRAS”). This is an important distinction as it means that if you own two properties, you will be taxed on both accordingly, regardless of whether your second property is vacant or occupied.

The AV of the property is the value that will be calculated when applying the property’s respective tax rate. Depending on the type of property, inclusions and exclusions of expenses may vary according to the Property Tax Act.

There are various ways to calculate a property’s AV, but residential properties are generally benchmarked against other comparable properties. The valuer would then make multiple adjustments based on any differences in existing physical condition and orientation. IRAS reviews the AV of properties yearly to reflect the changes in the market rental values of comparable properties. The AV will be amended if the latest market rent data no longer support your existing AV.

As Singapore continues to grows, stronger demand for property in this land-scarce country will continue to push property prices higher. The property tax therefore serves to disincentivise and deter the possibility of multiple property ownership, firstly through progressive tax rates on annual value, and secondly through higher tax rates for non-owner-occupied property.

Changes for owner-occupier tax rates

Pursuant to the changes in 01 January 2024, properties with an AV of under $55,000 experience only a slight increase in property taxes. However, properties with an AV of over $70,000 will be most affected by these new measures, with an extreme scenario shown in the example above.

While the former tax measures put properties with an AV over $130,000 in the same bracket, the new measures do the same with properties beyond $100,000. Similarly, we see greater stratification amongst properties that fall into the lower AV range, which may be a response to the strength in demand for smaller quantum units as seen throughout 2020-2021.

However, the AV for most Singaporeans fall below $30,000 for HDBs and below $40,000 for private residential properties, which means that the incremental property tax on our existing property is less substantial. In fact, the largest increase in property tax would only affect approximately 7% of homes in Singapore, belonging to those who own Good Class Bungalows and large landed properties.

When does owner’s occupier’s tax rate apply?

An individual or a married couple must own and reside in the residential property to qualify for owner-occupier tax rates. If you are a married couple that owns 2 homes, the concession can only be applied to 1 home. Despite both homes being occupied, the concession can only be applied to one of the homes regardless of whether it is owned jointly or separately by the spouses.

The owner-occupier tax rates are not applicable under any of these circumstances: –

1. The property has been wholly rented out.
2. The property has been sold.
3. The property is owned by a company, trust, association or a body of persons; and
4. The property is a commercial or industrial building or land.
5. The property is vacant.
6. The property is held under trust and the trustee is not residing in the property.

Please see the illustrations below to better understand the possible scenarios on owner-occupier tax rates.

Scenario 1: Owning more than 1 home

If you own a private property or HDB flat (A) and recently purchased another private property (B), you can apply for the owner-occupier tax rates for property (B) if you are residing in it. The concession on property (A) will cease from the date you start enjoying the owner-occupier tax rates on property (B).

Scenario 2: Owning a property with a non-spouse
If you jointly own 2 residential properties (A and B) with another party other than your spouse (e.g. parents, siblings, etc.), you can apply for concession for each of the property.

Example: If you occupy residential property (A) and your parents occupy residential property (B), you can apply for the owner-occupier tax rates for property (A) and your parents can apply for the concession for property (B).

Scenario 3: Renting part of your home

If you partially let out your home while still living in it, you are still eligible for the owner-occupier tax rates.

Scenario 4: Deceased owner

The owner-occupier tax rates apply only when the owner owns and lives in the residential property.

When the owner passes away, the Legal personal representative should complete the legal transfer of the property to the beneficiaries as soon as possible. Owner-occupier tax rates may then apply, depending on the new ownership structure.

When the owner of a residential property that qualifies for owner-occupier tax rates passes away, IRAS will continue to apply the concession for up to 2 years from the owner’s passing or the date of transfer of the property, whichever is earlier. The tax rates will only be adjusted to higher non-owner-occupier tax rates if the property remains to be held by the estate of the deceased person. This automatic extension of the concessionary tax rates is to allow some time for the property transfer arrangements to be made.  Once the property transfer arrangements are completed, if the new owner moves in to reside in the property, he/she can then apply for the owner-occupier tax rates from the date of occupation.

If the property is legally constrained from being transferred to the beneficiaries (e.g. the beneficiary is below the legal age of 21), you can submit an appeal via email with this template for the owner-occupier tax rates to continue to apply to the property. Beneficiaries have to be residing in the property and not be enjoying owner-occupier tax rates on another property to qualify for the concession.

Scenario 5: Properties held in Trust

If you are holding the property in trust, you (trustee) are updated as the owner in the Valuation List for property tax purpose. The owner-occupier tax rates will not be applicable if the owner (who is entered in the Valuation List) is not residing in the property.

Non-owner-occupied residential tax rates

For non-owner-occupied residential tax rates, increases were more significant across all brackets. This is likely aimed at curbing the purchase of multiple properties beyond one’s means.

In addition, as property tax is a tax on wealth in the form of property ownership, it should be levied irrespective of whether the property is vacant or occupied. The vacancy refund scheme was thus removed in 2013, consistent with this intent of property tax.

Conclusion

Overall, when purchasing a property, it is important to consider these longer-term factors that relate to recurring costs. While additional fees like stamp duties are initial hurdles to consider, the impact of property taxes may limit your ability to renovate or upgrade your property. As always, we recommend taking all these factors into consideration when deciding whether to purchase a second property or when deciding which property should be listed as owner-occupied to optimise your property taxes.

In light of the above information, it is therefore essential that you speak to your lawyers before considering any acquisition of property or properties in Singapore to avoid any uncertainty in terms of Property Tax. Here at Sim Mong Teck & Partners, our experienced conveyancing team have a wealth of experience and knowledge on property related matters. This allows us to provide you with sound and practical advice on your queries.