The lower property tax is a good thing, but retirees should also consider the costs of home ownership.
Some older Singaporeans have a lot of assets but little cash flow. An older Singaporean retiree could own a home that was purchased years ago and has appreciated in value.
This retiree may not have a strong cash flow to pay for the costs associated with owning a house, like property tax.
This scenario can be considered a problem of the first world.
Renting out a bedroom could generate income for the retiree.
The retiree might be worried about privacy and safety when taking on a new tenant. The retiree might want to set aside a space for his children or grandchildren when they come over.
The retiree in question could certainly raise money by moving from a private residence to a Housing and Development Board flat.
HDB flats are available in a variety of locations and are often spacious. HDB towns are well connected by transport and have comprehensive amenities, including healthcare and recreation facilities.
Moving home can still be stressful for some people, especially those in their 70s and 80s. Will they be able to adapt well to the new environment? Will they suffer from a mental health problem due to moving home?
Costs associated with moving from an owner-occupied house to another include stamp duty, legal costs, agent fees and relocation expenses.
Property Tax Changes
In Budget 2024, Finance Minister Lawrence Wong announced that the annual value (AV) bands of residential property tax rates for owner-occupiers would be increased.
The lower threshold for AV will increase to S$12,000, from S$8,000. The highest band will also be increased from S$100,000.00 to S$140,000.00. The bands between will also be adjusted.
The estimated annual gross rent for a property is calculated by subtracting furniture, furnishings, and maintenance costs.
The Inland Revenue Authority of Singapore is also offering a 24-month installment plan, without interest, to retirees who live in high-end residential property and have cash flow problems when paying their tax bills.
The new AV bands will result in lower property taxes for many private home owners by 2025.
Consider the owner-occupier who owns a condominium unit. The AV of that unit has increased by 30% from S$54,000 to S$70,000 between 2022 and 2024.
The AV band adjustment will reduce the annual property tax by 27 percent, from S$5,080 in 2015 to S$3,720 in 2025.
The property tax bill for the owner-occupier of the example above will be S$2,840 in 2025, more than twice the amount of S$1,840 that was paid in 2022.
Owner-occupier taxes on homes will rise from 0-16% in 2022, to 0-23% in 2023, and to 0-32% in 2024. Homes with higher AVs are subject to higher tax rates.
Property tax is a major source of wealth taxation for the government. Property tax is an effective way to tax wealth because it’s hard to avoid. Taxing wealth to fight inequality is fair and vital, as those with more means contribute more.
The AV bands of the residential property tax rates for non-owners remained unchanged in Budget 2024.
In the future, don’t discount the need for higher residential property taxes to fund increased healthcare expenditures and other costs.
Future property tax increases could be disproportionately imposed on non-owner-occupied homes and more expensive homes.
In fact, it may not have been necessary to reduce the property tax on top-end homes. A high-end owner-occupier with an AV of S$150,000 in 2025 will see their property tax reduced by 21 percent from S$27.980 to S$22.220. This is due to the new AV bands.
The cost of owning a private home
In the future, rates of residential property taxes for owner-occupiers could rise. If the AV of houses increases, then property taxes will also rise.
When retiring, it is important to have a home that has been fully paid for. This can help you age with dignity.
CPF Life offers a fixed-annuity to help fund retirement.
However, retirees with private homes should be aware of the rising costs that come along with home ownership. This includes higher property taxes.
If expenses increase, relying heavily on annuities can prove inadequate.
In retirement planning, it is important to determine whether you can afford to keep your home.
Right-sizing your home while you still have the energy to do so can help to reduce the risk of rising property taxes and allow you to age in dignity.
Hopefully, the property tax rates on owner-occupied houses can be made affordable to many people. Some people may want to keep their beloved private homes in order to enjoy their golden years.
It is possible that having Singaporeans who are able to retire comfortably in their own homes after many years of hard work will inspire the younger generation to strive to achieve this dream.
