09-26-2023, 10:23 AM
Why using ‘loopholes’ to invest in property doesn’t pay
Tan Ooi Boon
Sep 23, 2023
Trying to find legal loopholes to dodge paying stamp duty when buying property can be a risky business that is more likely to leave you tied in financial knots.
Just following the rules might sound too passive and unimaginative for some, but it’s a lot better than getting embroiled in a legal wrangle later. The stakes are especially high when it comes to property, as it is possible you could lose your precious bricks and mortar if you get it wrong.
For instance, two sets of parents who bought properties on trust for their children recently claimed that they were the actual owners because they had used such an arrangement to save on having to pay the additional buyer’s stamp duty (ABSD).
But they ended up losing their homes because the High Court found that once the trusts were properly put in place, the properties belonged to the children, and the parents would be barred from having any claim on them.
Here are more examples of how the misuse of legal arrangements can backfire if you do so for selfish gains.
Using trust to bypass law
A foreign company directed an employee to buy a house and hold it for the firm’s benefit, but this breaches the Residential Property Act, which prohibits such transactions unless there is formal approval.
The deal was exposed when the employee later sold the property without permission and tried to pocket the sales proceeds of over $10 million. He was charged with violating the law and the money was seized by the authorities.
The company tried to get its funds back as it had paid for the property, but its claim was disallowed because the whole transaction was tainted by “illegality”.
Asking children to hold property
In an unusual case in Australia, an elderly widow was caught in a wrangle over a house that was put in the names of her children because the woman wanted to invest in a second home.
Unlike parent-child disputes here that often concern the ABSD, the woman took advantage of a special government subsidy that would enable widows of soldiers to buy their first home.
As the woman already owned a home, she had to transfer it to her son and daughter before she could get the subsidy to buy the second house.
All was well until the daughter said that half of the first home belonged to her as it was a gift from her mother. The dispute was fought twice in the courts, but the widow lost her case and the subsequent appeal.
She could not rebut the argument that she did not intend to give the house to her children because she would have to rely on her illegal ploy of obtaining a subsidy on the purchase of the second house.
But in her final appeal to the High Court, she got her home back because the judges felt that it would be unfair to apply the “all-or-nothing” approach to deny her claim totally, just because she took the subsidy.
Her victory was not without a price – she had to refund the subsidy and pay a penalty because the aid to help buy her second house was obtained by her unlawful conduct.
Passing property to friend to avoid bankruptcy
In another case in Britain, a man asked a friend to buy his home in a fake deal because he was worried that he would lose it in an impending bankruptcy action.
The friend would then transfer the property back to the man once the risk of bankruptcy passed or after he repaid his debt. This did not happen as the man later died.
The English High Court ruled that the friend would hold the house on trust for the man’s estate, even though the whole deal had an illegal purpose – to shield the property from bankruptcy.
After repaying the mortgage that the friend took out to buy the property, the rest of the sales proceeds of the home should revert to the man’s estate. This meant that if he still had unpaid debt, his creditors could pursue their claims.
The lesson of these cases is simply that the law is meant to protect your rights, but you should never think you can misuse it for selfish gains.
Tan Ooi Boon
Sep 23, 2023
Trying to find legal loopholes to dodge paying stamp duty when buying property can be a risky business that is more likely to leave you tied in financial knots.
Just following the rules might sound too passive and unimaginative for some, but it’s a lot better than getting embroiled in a legal wrangle later. The stakes are especially high when it comes to property, as it is possible you could lose your precious bricks and mortar if you get it wrong.
For instance, two sets of parents who bought properties on trust for their children recently claimed that they were the actual owners because they had used such an arrangement to save on having to pay the additional buyer’s stamp duty (ABSD).
But they ended up losing their homes because the High Court found that once the trusts were properly put in place, the properties belonged to the children, and the parents would be barred from having any claim on them.
Here are more examples of how the misuse of legal arrangements can backfire if you do so for selfish gains.
Using trust to bypass law
A foreign company directed an employee to buy a house and hold it for the firm’s benefit, but this breaches the Residential Property Act, which prohibits such transactions unless there is formal approval.
The deal was exposed when the employee later sold the property without permission and tried to pocket the sales proceeds of over $10 million. He was charged with violating the law and the money was seized by the authorities.
The company tried to get its funds back as it had paid for the property, but its claim was disallowed because the whole transaction was tainted by “illegality”.
Asking children to hold property
In an unusual case in Australia, an elderly widow was caught in a wrangle over a house that was put in the names of her children because the woman wanted to invest in a second home.
Unlike parent-child disputes here that often concern the ABSD, the woman took advantage of a special government subsidy that would enable widows of soldiers to buy their first home.
As the woman already owned a home, she had to transfer it to her son and daughter before she could get the subsidy to buy the second house.
All was well until the daughter said that half of the first home belonged to her as it was a gift from her mother. The dispute was fought twice in the courts, but the widow lost her case and the subsequent appeal.
She could not rebut the argument that she did not intend to give the house to her children because she would have to rely on her illegal ploy of obtaining a subsidy on the purchase of the second house.
But in her final appeal to the High Court, she got her home back because the judges felt that it would be unfair to apply the “all-or-nothing” approach to deny her claim totally, just because she took the subsidy.
Her victory was not without a price – she had to refund the subsidy and pay a penalty because the aid to help buy her second house was obtained by her unlawful conduct.
Passing property to friend to avoid bankruptcy
In another case in Britain, a man asked a friend to buy his home in a fake deal because he was worried that he would lose it in an impending bankruptcy action.
The friend would then transfer the property back to the man once the risk of bankruptcy passed or after he repaid his debt. This did not happen as the man later died.
The English High Court ruled that the friend would hold the house on trust for the man’s estate, even though the whole deal had an illegal purpose – to shield the property from bankruptcy.
After repaying the mortgage that the friend took out to buy the property, the rest of the sales proceeds of the home should revert to the man’s estate. This meant that if he still had unpaid debt, his creditors could pursue their claims.
The lesson of these cases is simply that the law is meant to protect your rights, but you should never think you can misuse it for selfish gains.