Overseas Property Co-Ownership With Children: Inheritance Tax Savings and Divorce Pitfalls

Unlike Singapore, which does not impose an inheritance tax, some countries impose rates of up to 55 per cent. This means that without proper tax planning, beneficiaries of million-dollar overseas homes may end up “losing” about half of their inheritance to the governments there.

Parents can avoid such taxes by making the property an outright gift to the children, but many prefer to retain the assets for themselves. Adding children as co-owners reduces the taxable portion while keeping control. However, this strategy comes with risks, particularly if the family situation changes.

A couple in their 70s – married for over 40 years – had bought two properties in London and put each of their two sons as joint owners of each home. They also had a million-dollar home in Tokyo, co-owned with their only daughter. In addition, the couple had three Singapore properties: a S$7.5 million matrimonial home and two investment properties worth about S$2 million each.

During the divorce, the High Court found that the couple’s total assets to be shared were worth over S$19 million. Almost 70 per cent, or about S$13 million, was in real estate. The court included all three overseas properties in the matrimonial pool, even though the couple’s children were co-owners.

High Court Judge Dedar Singh Gill noted that the couple were the actual owners of these properties and that their children’s names were added as part of their legacy planning to avoid the inheritance tax in those countries. The husband, as the main breadwinner, was entitled to a 65.5 per cent share of their assets, or about S$12.5 million, while his former wife would get about S$6.6 million.

First, keep inheritance separate. If you receive a large inheritance and want to keep it for yourself, do not deposit the money in a bank account that you use for family expenses. Place it in a new account so that even if you withdraw or transfer some of it for your use, the balance can be traced to the original sum.

Second, do not sweat the small stuff. If you have assets worth millions, it would seem petty to fight over small sums or invaluable items that are not easily sold for cash. In this case, the husband went after his wife’s art gallery, which had a bank balance of about S$4,500, and disputed coffee-table art books worth S$15,000. The judge described the husband’s claim as “grasping at straws”.

Third, cash flow is needed to maintain properties. If you are buying an apartment with a view to earning rental income, always factor in the costs of maintaining it so that you do not end up in deficit, especially if you cannot find a tenant.

In Singapore, there is no tax or stamp duty payable when properties are passed to named beneficiaries. Parents just have to state their wishes clearly in their wills and need not resort to naming joint owners of their real estate.

Due to Singapore’s unique property regime, it is actually not advisable to split a single property into smaller shares for multiple children because doing so can create problems later. For instance, a man’s will stated that his S$2 million apartment was to be split equally among his four children. But a quarter stake in the apartment meant that they would each be treated as property owners, making them ineligible to buy an HDB flat for their own families. They would also incur additional buyer’s stamp duty if buying private property, and the arrangement could create a deadlock if siblings wanted to sell.

If parents do not want a particular child to inherit the property, they should not give the wrong impression by naming that child as a joint owner. Some parents have included such joint owners only for administrative purposes, because they willed the properties to other children, causing the joint owners to sue their siblings.