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What to Know About Property Tax
Foreword
When purchasing your flat in Singapore, it's necessary for you to know all the expenses, especially for the taxes you will need to pay. Except for Buyer's Stamp Duty (BSD) and Additional Buyer Stamp Duty (ABSD), here are a few points you need to know about Property Tax in Singapore.
1. What Is Property Tax?
Property tax is a wealth tax levied on property ownership. It is not a tax on rental income. It is thus levied on the ownership of properties, irrespective of whether the property is occupied or vacant.
2. How Is Property Tax Calculated?
The property tax is calculated by multiplying the Annual Value (AV) of the property with the prevailing property tax rate.
Annual Value (AV)
Every property has an AV. This AV of a property is determined based on market rentals of similar or comparable properties. What this means is that if you own a five-room flat in Toa Payoh, the Inland Revenue Authority of Singapore (IRAS) looks at similar five-room flats in Toa Payoh and how much they are rented out at, to determine the Annual Value.
Property Tax Rates
We have progressive property tax rates for residential properties, i.e. the higher the value of the residential property, the higher the tax rate. Changes were introduced to both owner-occupied homes, and non-owner-occupied residential properties.
Owner-Occupied Residential Properties
Under the new property tax structure, properties with AV below $8,000 will pay no property tax. In fact, all homes with AVs up to $55,000 will either pay no property tax or lower effective property tax, as compared to the property tax payable under the previous structure. The new rates took effect on 1 January 2015.
Non-Owner-Occupied Residential Properties
This refers to residential buildings which are not owner-occupied and does not include residential land.
Property tax rates for non-owner occupied residential properties will be based on a progressive scale ranging from 10% to 20%, up from a flat 10% previously. The new rates took effect from 1 January 2015.
The tax rates for owner-occupied residential rates will continue to be lower than those for non-owner occupied residential properties. The tax rates are shown in the tables below.
3. Why Does My Annual Value Change
Over the Years?
As property tax is a wealth tax based on property ownership, AV is reviewed and adjusted to reflect the change in market values of comparable property. The AV may be revised upwards, downwards or kept at the same level depending on the market values.
4. Why Do I Have to Pay Property Tax on My Home When I Am an Owner Occupier and Not Deriving Rental Income?
Property tax based on property ownership and therefore is levied regardless of whether the property is owner-occupied, vacant or rented out. However, to encourage home ownership, we have a lower tax rate for owner-occupied residential properties.
For more information on the concessionary owner-occupier's tax rate, please refer to IRAS official website.
5. I Rent Out My Residential Property and Have to Pay Tax on My Rental Income and on the Property. Am Being Taxed Twice?
There is no double taxation here. Property tax is imposed based on property ownership. It is different from income tax on the rental income, which is a tax on the income which an individual earns.
For more information on property tax, please refer to IRAS official website.
6. Why Not Use Capital Value to Estimate Annual Value for Property Tax Calculation?
In Singapore, we use rental transactions of comparable properties to determine the AV of the property for the purpose of property tax, for 2 reasons:
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There are generally more rental transactions than sales transactions, to allow AV to be determined for each property based on comparable properties.
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Movements in sale prices are more volatile than rentals. Hence, using rental transactions to derive the AV helps to keep property tax more stable for property owners.
This practice of using market rents to determine the AV is also adopted by other jurisdictions like Hong Kong and Malaysia.
7. Why Do We Only Have Property Tax as a Wealth Tax?
Each country has its own type of wealth taxes such as property tax, estate tax, inheritance tax and capital gains tax. The challenge is to design a wealth tax regime that is equitable, cannot be easily avoided, and does not impede economic activities.
We eliminated estate duties in 2008 as its greatest impact was not on the wealthiest individuals, who tended to manage their financial assets globally. In doing so, the Government explained that property tax would be retained as the only wealth tax as it could be structured more equitably, with the owners of more valuable properties paying more. We also do not levy wealth taxes on any other forms of wealth such as cash or equity for practical reasons monies can easily be shifted to similar assets in other financial centres, and such taxes will impact Singapore's competitiveness as a financial centre.
Property tax cannot be avoided or tax-planned away. It does not affect our middle and upper-middle-income group disproportionately compared to wealthier ones. It also does not impede economic activities or our competitiveness. We have thus kept property tax as our wealth tax based on property ownership.
The above information is taken with reference from the Singapore Government website and should be used for your reference only. For more property tax details, please refer to IRAS website for the latest updates.