How about beneficiaries who can’t afford to pay the tax, they’d be forced to sell the property they inherit just to pay the tax?
Or cash out financing, as they prefer.
N.B. Mortgage debt would not be counted for these purposes. Otherwise the owner could simply mortgage the home to avoid the tax (to drop the home equity down to S$5 million or at least closer to it). And conceivably the loan could be a “dodgy” one, via a family member. Lenders would have to take into account the ABSD when deciding how much they’re willing to provide in home equity/cash out financing. But even for a S$10 million home minimum luxury ABSD would be only S$1 million (10%), and nobody is lending more than 75% of home valuation today.
I’d suggest an IPSSD Inherited Property Sellers Stamp Duty, payable upon sale.
Or why not just apply a minimum 20% ABSD on the portion of a home’s value in excess of S$5 million for
every sale/transfer, death-related or otherwise? With a narrow spousal exception(*) perhaps. A minimum ABSD on luxury homes could be just another line in the current ABSD rate schedule. Pretty easy, really.
Apply the same 20% tax rate on the portion of a private automobile’s resale value in excess of S$250,000 (inclusive of COE). If the owner dies in a car wreck then the first part of the car insurance payout would go to the government to settle the tax, and the remainder would go to the decedent’s estate.
Whack the cars and expensive homes upon transfer! It’s at least really difficult to avoid or evade these luxury taxes since they relate to real property in Singapore, and they can only affect genuinely well-to-do households. They wouldn’t materially affect wealthy households’ incentives or behaviors (an overwrought argument anyway). And to the extent they do (reducing demand for palatial homes) that’s a GOOD thing (more housing units in Singapore’s limited space). It might also cajole wealthy households to allocate more of their wealth to productive business investments in Singapore at the margins. And they‘re on top of existing tax schedules and tax collection structures, so there’s not a lot of bureaucracy to add.
Singapore is in the midst of hiking property taxes primarily on luxury homes. The first hike took effect January 1, 2023. This coming January 1 the second half of the hike will take effect. I see one more tweak available: harmonize the owner-occupied and non-owner occupied marginal rates in the upper couple brackets. The 2024 top 2 marginal rates on owner-occupied homes will be 26% and 32%. Just raise them to the non-owner occupied marginal rates of 28% and 36%. Owner-occupied homes will still enjoy a significant property tax break no matter what the home‘s annual value, but the benefit would be attenuated at the super luxury end of the market. And owner-occupiers don’t have to pay income tax on rental income.
Likewise, Singapore could introduce property taxes on luxury private automobiles. The 0% rate could extend to vehicles worth the equivalent of S$250,000 or less (COE inclusive), and then about 4 marginal rates could extend upward from there. (Maybe $250K to $400K, $400K to $700K, $700K to $1M, and $1M+.) VPT can be straightforwardly attached to the current 6 Month Road Tax regime.
Are there any other wealth taxes we can think of?
(*) What would a narrow spousal exception be like? If the spouse was married to the decedent for at least 3 years, was not legally separated, lives in the home (immediately before and after the death), and otherwise qualifies for 0% ABSD then Minimum Luxury ABSD would be waived. I think I’d grant the same sort of exception to a disabled immediate family member.
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