OWNER-OCCUPIED RESIDENTIAL PROPERTIES (Review of estate duty exemption limit)

Dr Toh Keng Kiat asked the Minister for Finance, in view of the recent upsurge in property prices, whether the Government will review the estate duty exemption limit for owner-occupied residential properties.

Dr Toh Keng Kiat (Nominated Member): Sir, I declare my interest in asking this Question.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, estate duty is a form of wealth tax which the Government uses to achieve the social objective of an equitable redistribution of wealth.

Residential properties up to a certain value are exempted from estate duty. The intention is to give relief to beneficiaries in the lower and middle income groups. The exemption protects dependants of the deceased who might otherwise have to dispose of their family home to pay estate duties.

At present, the exemption limit for residential properties is $3 million. This is irrespective of the number of residential houses owned by the deceased. Despite the recent increases in property prices, the existing ceiling should provide adequate relief. It covers all HDB and HUDC flats as well as most private apartments and landed properties. Only the very wealthy in the population need pay estate duty on residential properties.

Dr Toh Keng Kiat: Sir, may I ask the Minister whether he considers it cost effective in view of the fact that the revenue from taxation on estates forms only a very small part of the taxation on assets?

Dr Richard Hu Tsu Tau: It remains cost effective because it is extremely easy to collect.

Mr Chiam See Tong: If people own properties worth more than $3 million and also cash, would there not be a danger of these people in their lifetime trying to repatriate their money abroad, rather than leaving it in Singapore? If the value of their properties becomes too big an amount, will they leave their money outside Singapore rather than leaving it here? Would that be a problem?

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I do not think so because our estate duty rates are quite low. So far, we are not aware that this is a problem because for property values exceeding $3 million, up to a limit of $10 million, the tax is only 5%. Thereafter, property values exceeding $10 million are taxed at 10%. So it is not an onerous tax at all. For those who are very wealthy, I think it is neither here nor there.

Dr Wang Kai Yuen: Sir, may I ask the Minister when was the $3 million limit set? Would he tie it with a real property? Let us say someone owns a $3 million property at that period of time. He was classified as not very rich. But today the same family living in that property has been classified very rich. How would he rationalise this? Would it not be more reasonable to adjust the limit from time to time in line with the escalation of property prices?

Dr Richard Hu Tsu Tau: That is true. But $10 million is a lot of money. I think very few people own properties worth more than $10 million.

Dr Wang Kai Yuen: When was the limit of $3 million set and why was it not adjusted from time to time?

Dr Richard Hu Tsu Tau: I do not recall exactly when it was set. I think $3 million is quite adequate even now.

Mr Chng Hee Kok (Tampines GRC): Sir, the question I want to ask the Minister is this. The limit of $3 million was set sometime ago and property prices have gone up. The $3 million house which Dr Wang mentioned is now worth $6 million. So the family will still have to dispose of the house in case the owner dies. The aim of the $3 million limit was to prevent a family from disposing of the property.

Dr Richard Hu Tsu Tau: That may be true. But I think for those who own properties exceeding $3 million, the estate probably has a good deal more in other assets. For people in that category, surely they cannot only own one house. We have estimated that only 11,000 or 1.7% of all the houses and properties in Singapore are worth $3 million or more. Therefore, we are talking about a very small group of people who are generally very wealthy and therefore need not require additional help, I hope.