As the famous saying goes - There are only 2 certainties in life; death and taxes.
This is true in many ways as we all will die at some time and we pay taxes, be it property tax, income tax, GST etc.
In this year's budget 2022 speech, Finance Minister Lawrence Wong confirmed the implementation of a wealth tax, similar to some European countries.
The government has been studying this idea for some time now as it is a very sensitive situation.
They need to ensure that the implementation of a wealth tax does not contradict Singapore’s position as a wealth management hub and yet factors in the increased mobility of both capital and high net wealth individuals.
In today’s article, we take a look at how the wealth tax can impact property owners and investors.
But first, what is a wealth tax?
It is a tax on an individual or entity’s asset holdings such as cash, properties, stocks and shares etc.
According to the Monetary Authority of Singapore’s (MAS) MD Mr Ravi Menon, the Singapore Government wants to reduce inequality and strengthen its social compact by promoting an inclusive society by shifting the balance in Singapore's tax structure away from taxing income toward taxing wealth.
As properties and cars are highly valued and sought after assets, the government is increasing taxes for these items as well as higher taxes for some income levels.
Many wealthy people invest in multiple properties and buy expensive cars that are out of reach for most people and taxes on these items will be quite substantial and provide steady and stable revenue for the government coffers.
The Singapore property market has been booming for the past 2 years despite the COVID-19 pandemic with private property prices climbing steadily and HDB resale prices at record highs despite additional cooling measures implemented last December.
In the Budget 2022 speech, Minister Wong announced that property tax will go up, along with additional levies for luxury cars and a higher personal income tax rate for top-tier earners.
Non-owner occupied properties
Property investors are likely to be affected the most as the increase will apply to homes with an annual value (AV) of more than $30,000 and all non-owner-occupied residential properties, with the high-end properties seeing the highest increase.
The current rate of 10 to 20 per cent will be raised to between 11 and 27 per cent in 2023 and between 12 and 36 per cent in 2024.
So if you have a non-owner occupied property with an AV of $150,000, your property tax will increase from the current $24,000 to approximately $43,000 in 2023.
Owner-occupied properties
For owner-occupied residential properties, the portion of AV in excess of S$30,000 will be increased from the current 4 to 16 per cent to between 6 to 32 per cent.
Most of us live in HDB flats and smaller private properties with an AV of less than $30,000. The rate hike will not have a significant impact as the increase will affect the top-end luxury properties.
Using the same example of a property with an AV of $150,000, the current property tax payable of $12,580 will increase to about $28,000 in 2023.
As the tax hike is targeting the top end of the property market, it is unlikely to affect the overall market as most private homes’ AV are below $30,000 and HDB flats’ AV are approximately $10,000 and below.
According to industry experts, the rate hike is unlikely to stop investors from entering the market as the increase is not so significant with the exception of high-end properties.
Property owners are not the only ones affected by the wealth tax. Buyers of luxury cars will also be subject to higher taxes. The government will introduce a new tier of Additional Registration Fees (ARF) of 220% for the portion of Open Market Value (OMV) of vehicles in excess of S$80,000.
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