The world of property is complex, and it is not uncommon for myths and misconceptions to circulate. These can often lead to confusion and even legal trouble for those who are not well-versed in the intricacies of property law and taxation. The Property Myths 99-1 Loophole is one example
In this article, we aim to provide clarity on some of the most common property myths, including the infamous 99-1 loophole, property ownership, terminology, and mixed-use and integrated developments. By doing so, we hope to help readers navigate the property market with confidence.
One of the most persistent myths in the world of property is the so-called 99-1 loophole. This myth suggests that by transferring 99% of a property to a company or trust and retaining just 1%, individuals can avoid paying capital gains tax and inheritance tax. However, this is not the case, and such arrangements can be viewed as tax avoidance by HM Revenue & Customs. It is important for property owners to understand the legality of such arrangements and to seek professional advice if they are considering them.
In this article, we will delve deeper into this myth and others, providing readers with the knowledge they need to make informed decisions about their property.
Property Myths 99-1 Loophole : Key Takeaways
- The 99-1 loophole is a myth that suggests individuals can avoid paying capital gains tax and inheritance tax by transferring 99% of a property to a company or trust and retaining just 1%. However, this can be viewed as tax avoidance and may have legal implications.
- Property buyers should be aware of aspects related to property ownership such as decoupling, resale ECs, fixed-rate home loans, and 99-year leases. Failure to do due diligence can result in common ownership issues.
- Buyers should be familiar with terminology and development types when navigating the property market. For example, integrated developments are linked to transport infrastructure or include civic facilities, while mixed-use developments have at least 40% of their GFA devoted to commercial use.
- When buying property, buyers should ask about land ownership during show flat viewing, as this can be an important consideration. The process of building and completing a condo can also take time, so buyers should be prepared for potential delays.
Tax Avoidance
In relation to the pre-existing knowledge, the current subtopic of tax avoidance pertains to the IRAS crackdown on buyers who have used the 99-1 arrangement to evade taxes. This loophole involves the transfer of 1% of a property to another buyer who already owns a property, resulting in a lower ABSD payable.
While the 99-1 loophole may seem like a simple way to save on taxes, it is important to note that this arrangement may have legal implications for the parties involved.
The IRAS is targeting buyers who have utilized the 99-1 loophole to avoid paying the full amount of ABSD. Buyers who have been found to have used this loophole may face legal consequences such as fines or even imprisonment.
It is crucial for buyers to understand the legal implications of such tax avoidance schemes and to seek professional advice before engaging in any such arrangements.
Property Ownership
Decoupling, resale ECs, fixed-rate home loans, and 99-year leases are all aspects related to property ownership that potential buyers should be aware of.
Decoupling refers to the process of separating the joint ownership of a property between two individuals, allowing one party to sell their share without incurring additional stamp duties.
Resale ECs, on the other hand, can be sold anytime after purchase, unlike new ECs where buyers have to fulfill the Minimum Occupation Period (MOP) before selling.
It’s crucial for buyers to understand the legal implications of fixed-rate home loans, as they may not be fixed until the end of the loan.
Additionally, 99-year leases may be reversionary leases, meaning that the ownership of the property will revert to the state after the lease expires.
Common ownership issues can arise when buyers fail to do their due diligence before purchasing a property.
It’s essential for buyers to understand that privatisation and the end of MOP are not correlated, and the land under a condo may be owned by the developer.
Moreover, buyers should inquire about the land ownership during the show flat viewing, as few buyers ask about it.
Being aware of these issues can help buyers make informed decisions and avoid potential legal complications in the future.
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