What happens when you inherit a property?
What is the process when you inherit a property in Singapore?
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You’ve recently inherited a property… what’s next?
Can you keep the property if you currently own another property? Do you need to pay ABSD for the inherited property? Are you even allowed to inherit the property?
It’s perfectly normal to have all these questions in your mind. However, inheriting a property in Singapore is not as straightforward and clear-cut as it seems. In some scenarios, it might even work against you.
Generally, most Singaporeans are asset-rich as their cash is tied up in their property, making it a huge part of their asset. Clients who do engage a lawyer to draft their will, will often include their property in their will as it is a high-value asset.
But, the question is will you be inheriting the benefits of this inheritance? Or will you be stuck paying property tax and ABSD until you liquidate the inherited property?
Do I have to pay stamp duty on my inherited property?
In Singapore, when you buy or sell a property, the government taxes you on the sale and purchase. This tax is referred to as Buyer’s Stamp Duty, Seller Stamp Duty, Additional Buyer Stamp Duty.
Depending on the circumstances, the stamp duty may or may not apply to the sale or purchase of the property.
If you have inherited the property under will or Interstate Succession Act, no stamp duty will be payable, including Additional Buyer Stamp Duty (even if you own more than one residential property in Singapore).
If you do decide to resell the inherited property, you will be required to pay a Seller Stamp Duty if you choose to sell it within 3-years of acquiring it.
*In most wills, an executor will be included to give power to the executor to hold on to the property for as long or until the price is right to sell the property.
What happens when siblings inherit a property?
In another scenario, what if you jointly inherit a property together with your siblings?
Stamp duty will be payable if other siblings wish to transfer (or sell) their inherited shares of the property solely to one sibling.
A real life case scenario:
A client of mine recently inherited a HDB flat from his dearly deceased mother. There was no will. The HDB was fully paid. The HDB flat was to be inherited equally among his three other siblings.
As there was no will involved, my client and his siblings hired a HDB lawyer to handle their case for them. My client was then appointed to be the executor of his mother’s estate.
My client currently owns a private property but was allowed to inherit the HDB flat as his second property. He even considered buying over the shares of his three other siblings.
However, buying over their shares would incur ABSD as he currently owns a private property. He would also need to fulfil a Minimum Occupation Period (MOP) of 5-years (like a normal requirement after purchasing a HDB flat) after taking full ownership of the HDB flat before being able to sell the HDB flat in open market.
The ABSD rate for second residential property was 17% at that time.
He decided to sell the HDB flat and split the proceeds with his siblings.
As the HDB flat has been fully paid for, the sale of the property was straightforward and the sales proceeds from the flat will go directly to the beneficiaries (i.e. my client and his siblings).
What if the property is not fully paid?
When you inherit a property, you are also inheriting the mortgage of the property. If you choose to keep the property, can you afford to inherit the outstanding loan amount?
Banks will assess your Total Debt Servicing Ratio (TDSR) to determine if you can inherit the loan amount which will determine whether you can inherit the property.
For example, if your current monthly loan repayments (car, home, credit card etc) does not exceed 60% of your gross monthly income, you may be able to take over the home loan.
If your income capability does not qualify the TDSR assessment, you will not be able to inherit the property. You will have to sell the property.
Say for example (using the above real life case scenario);
Assuming the inherited HDB flat has not been fully paid. My client and his siblings decide to sell the flat. The sale proceeds from the HDB flat will be used to pay off the outstanding loan amount. After which, the remaining proceeds will then be distributed according to the deceased’s will or according to the Interstate Succession Act (if there is no will).
Most Singaporeans will utilise their CPF savings in the purchase and/or monthly loan repayments of a property. CPF savings used to purchase/service the monthly home loans of a HDB flat will automatically be insured under the Home Protection Scheme (HPS).
Under this scheme, the deceased owner is insured that after he/she passes on, the outstanding loan will not be passed on to his/her beneficiaries. CPF will pay off the outstanding loan after the owner passes on.
Can I inherit a HDB flat if I own a HDB flat?
At any point in time, HDB does not allow you to own more than one HDB flat, so essentially you can’t inherit the HDB flat.
You will be required to dispose of either of the HDB flat within six months.
HDB rules also apply when inheriting a flat (similar to buying conditions). If you are single, you need to be 35 years and above to be able to inherit the flat.
Can I inherit a HDB flat if I own a private property?
As mentioned previously in the real life case scenario, you can inherit a HDB flat even if you own a private property.
However, the HDB flat has to be purchased before 30 August 2010 and not bought with any grants.
If you decide to inherit the HDB flat and keep both properties, you will be required to fulfil the MOP.
If you decide not to inherit the HDB flat, you will be required to sell the flat within 6-months.
Can I inherit a private property if I own a HDB flat?
You will be allowed to inherit the private property if you fulfil certain conditions.
- You have fulfilled the MOP of your HDB flat
- You are a Singaporean
If you do not meet the above conditions, you will be required to sell one of the property.
Inheriting a property now could restrict your property ownership in the future
Say you are able to cover the monthly mortgage or even better, the property you inherited has been fully paid for. You are now the new owner of the inherited property. What next?
Inheriting this property would still count towards the number of properties you own.
Scenario 1: Buying a BTO
You are a Singaporean who just inherited your first property. You will not be able to apply for a new BTO flat. If the property you inherited is a private property, you would first have to dispose of your private property, wait out 30-months, then be eligible to apply for a BTO flat.
Scenario 2: Buying a resale HDB flat
If you are considering to purchase a resale HDB flat, you will need to dispose of your private property, wait out 15-months, before you can buy a resale HDB flat.
Scenario 3: Buying a private property
If you have inherited a private property and wish to purchase a second private property. You will need to pay a 20% ABSD (as of 27th April 2023) on the second property you wish to purchase.
**While this information is accurate at the time of writing, please consult a professional real estate agent for more information/advice on your specific inheritance case.
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