Is inheritance tax payable when you die in Singapore?

Are you wondering if your assets would be charged for tax after you die? Not in Singapore — if you die on or after Feb 15, 2008.

WHAT IS INHERITANCE TAX? 

Inheritance tax, also known as estate duty in Singapore, is the tax charged on the total market value of the assets of someone who has died, at the date of the death and regardless of whether there is a will.

A deceased person's assets are referred to as the estate. An estate includes the following:

• Everything owned in the deceased's sole name, or jointly owned with others;
• Gifts made within 5 years before the deceased's death;
• Gifts made anytime from which the deceased retained some benefits. For example, if the deceased had been collecting monthly rental income from a house that was given to someone else, the house is included as part of the deceased's estate
• Assets held in trust which personally benefited the deceased, such as a bank account that was held in trust for a minor.

IS INHERITANCE TAX THE SAME AS THE FEE TO ADMINISTER AN ESTATE? 

In Singapore, the Public Trustee can administer estates that do not exceed $50,000 in value, among other conditions.

There is a fee charged by the Public Trustee for the administration of the estate and it cannot be waived.

This fee is separate and should not be confused with inheritance tax.

WHO HAS TO PAY INHERITANCE TAX? 

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In Singapore, inheritance tax is governed by the Estate Duty Act (EDA). According to section 2A of the EDA, inheritance tax is only applicable to persons who died before Feb15, 2008.

This means that persons dying on or after Feb15, 2008 do not have to pay inheritance tax.

Where there is a will, the tax would be paid by the executor. If there is no will, the tax would be paid by the administrator or the accountable person.

WHY WAS INHERITANCE TAX ABOLISHED? 

Inheritance tax was initially seen as a way to re-distribute the wealth in the new generation, as the tax would be contributed to the development of the society for everyone to benefit.

This would, in turn, reduce the concentration of wealth among certain households, each time the wealth was passed down in the family, increasing social equity.

However, as wealth was generated in other ways such as by entrepreneurial means, even when there is little initial capital, inheritance tax did not seem as impactful.

In addition, the abolishment of the tax would attract high-net-worth individuals who would invest and accumulate wealth in Singapore, which eventually benefits the economy and society.

HOW IS INHERITANCE TAX CALCULATED? 

Inheritance tax can be calculated based on the following steps:

1. Determine assets that are subject to inheritance tax
2. Calculate the total market value of these assets
3. Subtract any applicable deductions
4. Apply the tax rate to the remaining tax figure
5. Include the interest amount where applicable and calculate the value accordingly

1. DETERMINING ASSETS THAT ARE SUBJECT TO INHERITANCE TAX

Assets that are subject to inheritance tax can be distinguished based on the domicile (the country in which the deceased was or was presumed to be a permanent resident of) of the deceased.

A deceased who domiciled in Singapore

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In Singapore, inheritance tax is payable for the total market value of movable and immovable assets of a deceased domiciled in Singapore.

This includes movable assets outside of Singapore, or tangible items that are movable, such as computers, jewellery or vehicles.

Immovable assets such as land and buildings that are outside Singapore are not subject to inheritance tax.

Inheritance tax is also payable for different types of gifts made by the deceased:

• A gift made within 5 years before the deceased's death
• A gift that was not possessed or enjoyed by the beneficiary immediately and that was entirely excluded from the deceased's possession or enjoyment
• A gift made 12 months before the deceased's death for public or charitable purposes

A gift is not subject to inheritance tax if it is:

• Made on or after Jan 1, 1999 to the Singapore government or an approved Institution of a Public Character (IPC); or
• A gift approved by the Minister and is made on or after 1 April 1987 to an approved museum

A deceased who died domiciled outside of Singapore

If the deceased died before Jan 1, 2002, inheritance tax is charged on the total market value of all his movable and immovable assets in Singapore at the date of death.

If the deceased died on or after Jan 1, 2002 and before Feb 15, 2008, the movable assets in Singapore are not subject to inheritance tax. Meanwhile, inheritance tax is payable for the immovable assets in Singapore.

However, it qualifies for the exemption threshold (maximum amount on which tax will not be imposed) of $9 million. This means that residential properties that amount to less than $9 million would not be taxed.

2. CALCULATE THE TOTAL MARKET VALUE OF THESE ASSETS

Reliefs

If 2 persons were to pass away on or after Jan 1, 2006, the estate of the deceased who died within 24 months after the earlier deceased would be entitled to Quick Succession Relief (QSR).

If the order of the deaths is unknown, it is presumed that the younger person died after the older person and had inherited the latter's assets.

Nevertheless, the estates of both persons and the applicable exemptions are separately assessed and applied. The QSR decreases as the time period between both months increases.

Exemptions

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The exemption threshold amount varies according to different types of assets:

For persons dying on or after Feb 28, 1996 and before Feb 15, 2008:

Dwelling houses (houses used for residential purposes and not for business) have an exemption threshold of $9 million

All other assets including CPF balance have an exemption threshold of $600,000

For CPF balance that exceeds $600,000, the exemption threshold is the excess amount.

For persons dying on or after Feb 25, 2000 and before Feb15, 2008:

Dwelling houses partly used for small business activities, (as allowed under the Housing and Development Board (HDB) or Urban Redevelopment Authority (URA) guidelines) and home office (approved by HDB or URA) have an exemption threshold of $9 million.

For persons dying on or after Jan 1, 1999 and before Feb 15,  2008:

For specific gifts in the will that are made to the Singapore government or an approved IPC, the exemption threshold is the value of the gift.

For gifts that are not specified in the will and are made to the Singapore government or any other IPC on or after Jan 1, 2002:

The value of the gift would be the exemption threshold. The executor or administrator has to submit a written notification from the IPC before the Notice of Assessment is issued.

3. SUBTRACT ANY APPLICABLE DEDUCTIONS 

For deceased persons who died between Jan 1, 2005 and Feb 14, 2008, a total of $6,000 or less for funeral expenses is allowed to be deducted from the value of the estate when determining the inheritance tax.

If debts are outstanding at the date of death, are incurred for the deceased's own use and benefit, and are not reimbursable, they can be deducted from the value of the property, regardless of whether inheritance tax applies.

4. APPLY THE TAX RATE TO THE REMAINING TAX FIGURE

Tax rates on the estate apply after all deductions in the form of exemptions, funeral expenses and debts (as discussed above) have been calculated.

For deaths from Feb 28, 1996 and before Feb 15,  2008, the net value of the inheritance tax would be taxed:

• 5 per cent for every dollar of the first $12 million; and
• 10 per cent for every dollar exceeding $12 million.

5. INCLUDE THE INTEREST AMOUNT WHERE APPLICABLE AND CALCULATE THE VALUE ACCORDINGLY 

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If the inheritance tax is not paid from the date of death to the date of payment, there is a simple interest on the unpaid amount that is payable.

The executor, administrator or other accountable person of the deceased's estate, may estimate the payable amount any time after the death and make payment to the Commissioner of Inland Revenue Authority of Singapore (IRAS).

There is a 6 per cent interest on the unpaid amount per year for 6 months after the date of death and a 12 per cent interest per year for 18 months after the date of death.

If there is a reasonable cause for:

• Not filing an inheritance tax return without the omission of assets; or
• The delay in filing the inheritance tax return; or
• Giving any required information for calculating the inheritance tax,

the Commissioner may reduce the interest rate. This interest rate will not be less than the current, prevailing prime lending rate of the banks in Singapore.

For deaths between Jan 1, 1999 to Dec 31, 2004, the interest on the amount of the unpaid inheritance tax differs according to the time period after the date of death:

• 3 per cent per year for the first 6 months;
• 6 per cent for the subsequent 12 months; and
• 12 per cent from the expiration of 18 months to the payment date.

LATE PAYMENT OR NON-PAYMENT OF INHERITANCE TAX 

Payment deadlines

For deaths between Jan 1, 2005 and Feb 14,  2008

An executor, administrator, or accountable person has to pay the inheritance tax within 30 days from the date of the Notice of Assessment (NOA).

The NOA is the tax bill that IRAS sends, which includes the payable inheritance tax if any.

If the inheritance tax or interest is not fully paid after the date of the NOA, a late payment penalty is imposed (see below).

For deaths before Jan 1, 2005

Only the interest imposed, and not the unpaid inheritance tax, is payable.

Late payment penalty

There is a penalty of 6 per cent per year on the first complete month, if the inheritance tax is not paid for more than 6 months after the death and within 30 days from the date of the NOA.

There is a further penalty of 1 per cent per year on an incremental basis for each completed month, for which the maximum may be up to 12 per cent.

Demand note

IRAS would issue a Demand Note for late tax payments, stating the penalty that is payable. If you receive a Demand Note, you should pay the duty and penalty within the deadline stipulated in the Demand Note.

If you do not do so, IRAS is authorised to take legal action against you to recover the unpaid inheritance tax without prior notice.

HOW DO I PAY INHERITANCE TAX? 

There are 2 ways to pay inheritance tax:

• Cheque; or
• Cashier's order from any bank in Singapore.

For cheque payments, the payment slip should be attached and the tax reference number should be written at the back of the cheque.

WHEN IS INHERITANCE TAX CLEARANCE REQUIRED? 

Inheritance tax clearance refers to the confirmation that your tax affairs are in order. Meaning, you have disclosed and paid all inheritance tax liabilities.

Clearance is not required if:

• The contents in any safe deposit box owned by the deceased have a market value of below $10,000.
• The deceased only owned an HDB flat in joint tenancy and the total value of the deceased's other assets does not exceed $600,000.

However, clearance is required if a Grant of Representation is required (a court order that authorises a person to administer the estate of the deceased - either a Grant of Probate or a Grant of Letters of Administration) or in instances where:

• The deceased transferred all assets as gifts to another person, and the total market value of such assets exceeds the exemption threshold of $600,000 at the time of death;
• The deceased died on or after Feb 28, 1996 and only had bank accounts and dwelling house in joint names with others, of which the total market value at the time of death exceeds $600,000 and $9 million respectively;
• The market value of contents in the deceased's safe deposit boxes in the same bank exceeds $10,000.

These are not exhaustive, and there may be other instances where clearance is required.

As inheritance tax or estate duty is currently not required, there is a lesser need to plan your estate in a way to limit the payable inheritance tax. Instead, the focus should be on planning your estate.

This article was first published in SingaporeLegalAdvice.

SingaporeLegalAdvice.com is a legal platform for individuals and small business owners needing legal help. The information provided above does not constitute legal advice and is to be followed at your own risk. You should obtain specific legal advice from a lawyer before taking any legal action.