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Wealth Tax: How Estate Tax In Singapore in Used To Look Like Before It Was Scraped In 2008

$153.7 million of estate tax was collected in 2007, the year before it was abolished.

Recently, Ravi Menon, managing director of Monetary Authority of Singapore (MAS), broached the topic of wealth tax in Singapore in a lecture with Institute Policy of Studies (IPS). The mention of re-introducing wealth taxation is accompanied by the concern to address the risk of rising inequality.  According to Credit Suisse global wealth report 2021, Singapore ranked 11th in the world in terms of millionaire density with the top 1% owning 33.9% of the country’s wealth.

Wealth tax is viewed as a measure that makes taxes more equitable by taxing more on the wealthy. Currently, there are two main forms of wealth taxes – property-related taxes and inheritance taxes. While Singaporeans would be no stranger to property-related taxes, we might not be that familiar with inheritance – or estate taxes, which has been abolished over 13 years ago.

In anticipation to the future of wealth taxes in Singapore, let us go back in time and look at estate taxes before it was abolished in 2008.

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Brief History Of Estate Taxes In Singapore

Introduced in 1929 under the Estate Duty Act, taxes are payable on the market value of the deceased persons estates. Singapore collected about an average of $75 million yearly. This amount was relatively lesser than the tax collected from stamp duties, income tax and Goods And Services Tax (GST).

In 2008, estate tax was abolished as it did not fulfill its objective of taxing more on the wealthy. The then Finance Minister Tharman Shanmugaratnam addressed that estate tax tends to affect the middle and upper-middle income disproportionately. This was due to the $9 million threshold taxable limit on residential properties. For example, a Good Class Bungalow with a valuation over $30 million would only be taxed at about one third of its value while a 4-room HDB flat with a valuation of $1 million would be fully taxable under the estate tax.

Based on IRAS collection by tax data, in 2007, Singapore collected $153.7 million of estate tax, which is 1% of the total tax revenue collected. Due to the minimal revenue from estate taxes, the government decided to discontinue and focus more on property related taxes which meets the objective of taxing the wealthy better.

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Apart From Properties, Savings, Stocks, Jewellery And Generated Income Were All Taxable Under Estate Tax

According to IRAS, estate tax is the tax on the total market value of the person’s cash and non-cash assets on the date of death. This covers all personal assets, including jointly owned accounts and assets or trusts funds (if any). For our CPF savings, it will not be liable for estate taxes as it is not considered part of our estate.

If we have income-generating assets, the income generated would also be taxed yearly until it is sold or transferred. This is also known as the income tax of an estate.

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Rate Of Estate Taxes Doubles When Your Wealth Exceeds $12 Million

The following explanation of estate tax in Singapore is based on the Estate Duty Act, prior to its abolishment in 2008.

Before our estate value is taxable, we are eligible to deduct the following – debts such as mortgages, funeral expenses no more than $6,000 and a $600,000 exemption on all assets. This means, if our total assets are below $600,000, including CPF savings, we would not be required to pay estate taxes.

After deductions, there are other tax exemptions applicable while calculating the estate value taxable. This includes a $9 million threshold taxable limit for all residential properties and the value of gifts made to the government or charities before and after death.

Depending on the eventual net amount of wealth in our estate after the deductions and exemptions, the rate of estate taxes payable varies. For every dollar below $12 million, the net value of the estate will be taxed at 5%. For every dollar above $12 million, the net value of the estate will be taxed at 10%.

Source: IRAS

The income that is subsequently generated from an estate or trust will be subjected to 17% flat tax rate.

For illustration of the estate taxes, here is a case study of a deceased party with a total assets value of $950,000. As shown below, all personal assets will be priced at market value with the relevant deductions in debts, funeral expenses, and exemptions.

Source: IRAS

Interest Will Be Charged On Any Unpaid Estate Taxes

From the date of death, there is a grace period of six months whereby no interest is charged on the estate tax payable. Understandably, there might be complications in terms of social and legal matters. Regardless, we can avoid being charged an interest by getting an official estimate of the estate and make payment to IRAS before claiming back the discrepancies on a later date.

In the event we are unable to pay the estate taxes after six months, we would be liable to an interest of 6% per annum on the unpaid amount. If there are still estate taxes outstanding after eighteen months, we would be required to pay an interest of 12% per annum. Deaths that occurred from 01 Jan 1991 to 31 Dec 2004 would have different interest rate charges.

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