In this article focusing on Estate Duty in Singapore, Hanisha Amesur, Director, Business & Family Solutions at Lighthouse Canton takes a look at the rationale for Estate Duty, why it was removed in Singapore, its relevance in today's private wealth landscape and considerations for the future.
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What is Estate Duty?
Estate Duty is a tax on the total/ fair market value of a person's assets (cash and non-cash) at the date of his or her death. The assets are subject to estate duty, regardless of where the deceased individual had a Will.
Singapore used to have Estate Duty from the year 1929 until it was removed for deaths on or after 15 February 2008.
Rationale for introducing Estate Duty
Estate Duty was initially seen to re-distribute the wealth to the next generations, by contributing it to the development of infrastructure, giving youth from all walks of life access to capital to succeed and for society's benefit in general.
The idea was also to achieve increase social equity by reducing the concentration of wealth amongst certain families, where otherwise wealth would be passed down within the family itself.
Similar rationale has been adopted in about a dozen countries such as US, UK, Japan and several European countries where Estate Duty/ Inheritance Tax or some form of wealth tax is enforced.
What constitutes an Estate?
- Assets held in personal name
- Jointly held assets (Joint and Joint and Surviving)
- Gifts made within five years before his or her date of death, including transfer of assets into a Trust
- Gifts in which the donor retains some benefits (e.g. entitlement to monthly rental income from real estate that was gifted)
- Identifiable Beneficial interest in a Trust
- Constructive Trust where the individual receives a benefit (e.g. bank accounts held in trust for children who are still minors).
What asset classes were covered under Estate Duty?
- Real Estate in Singapore
- Bank Accounts
- Publicly Listed Shares
- Items in Safe Deposit Box: All assets over and above $10,000, i.e. there is an exemption of $10,000
- Houses used wholly for residential purposes, including rented out for residential purposes*
- All other assets (including Central Provident Fund balances) up to $600,000 for individuals deceased between 28 Feb 1996 and 15 Feb 2008
- The excess Central Provident Fund (if the balance exceeds $600,000)
- Gifts made to the Singapore Government or Institutions of Public Character.
*up to a value of $9 million for individuals deceased between 28 Feb 1996 and 15 Feb 2008
Why was Estate Duty abolished in Singapore?
Prior to its abolition, Estate Duty collection ranged at around S$70-75 million a year. However, as wealth was generated in other ways such as by entrepreneurial means, even when there was little initial capital, inheritance tax did not seem as impactful.
In addition, the argument in favour of abolishment of the tax was that it would attract high-net worth individuals who would invest and accumulate wealth in Singapore, thus contributing to the economy, albeit indirectly, in the form of increased employment.
The abolishment actually paid off in Singapore with marquee families moving their wealth and families to Singapore.
Multinational families have chosen and continue to choose Singapore as their home base setting up their life and operations here, investing in high value residential properties, etc. for all the advantages that it offers.
Singapore has been recognized globally as one of the most competitive wealth management hubs in terms of financial services, ease of business and taxation.
While non-existence of Estate Duty may be a consideration, it is not considered the driving factor for the inflow of capital to Singapore. Other considerations also include access to capital flow, active capital markets, geo-political stability, and a reliable judicial system.
As the pandemic continues to mount financial pressure on nations globally, there is a possibility that wealth tax becomes increasingly appealing as a supplementary source of revenue to the exchequer. Singapore too may have given an indication of reviewing the possibility of a wealth tax or re-introduction of Estate Duty.
While the introduction of wealth tax would affect everyone, the re-introduction of an Estate Duty in Singapore would affect middle and upper middle-income group just as much (if not more) than the high net worth or ultra-high net worth individuals or families.
Should Estate Duty be reintroduced in Singapore, it will go through rigorous considerations and in-depth study with respect to its scope, application, and administration.
References: Inland Revenue Authority of Singapore, Estate Duty, https://www.iras.gov.sg/irashome/Other-Taxes/Estate-duty/Estate-Duty/ Inland Revenue Authority of Singapore, How to Calculate Estate Duty (Exemptions) https://www.iras.gov.sg/irashome/Other-Taxes/Estate-duty/How-to-Calculate-Estate-Duty/#Exemption
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