Background

The overheated property market in Hong Kong has long been a major social issue.Over the past few years, property prices have been soaring to a level where a sizable proportion of the general public finds it unaffordable.In view of the great public concern, the government has introduced different measures attempting to cool down the property market including the adjustment of existing stamp duty rates and the introduction of new stamp duty.This article gives an overview of the current stamp duty in relation to property transactions.

Ad Valorem Stamp Duty (“AVD”)

Any property, whether residential or non-residential, acquired by an individual or a company on or after 23 February 2013 will be subject to the new rates of AVD (the “New AVD”), unless an exception applies.The New AVD is payable on an agreement for sale for both residential and non-residential property.It is important to note that the charging of the New AVD on non-residential property has been advanced from conveyance on sale to the agreement for sale.Both the buyer and the seller are liable to pay the New AVD.

The New AVD Rates

Below is a table of the New AVD rates (subject to the marginal relief):

Exceptions to the New AVD

Subject to the legislation, the followings are the major exceptions to the New AVD specifically applicable to residential properties:

1. acquisition of a residential property by a Hong Kong Permanent Resident (“HKPR”) acting on his own behalf who does not own any other residential property in Hong Kong at the time of acquisition.A person will not be acting on his own behalf if, for example, he enters into a sale and purchase agreement as a trustee for another person;

2. joint acquisition of a residential property by two or more HKPRs each acting on his own behalf and none of them own any other residential property in Hong Kong at the time of acquisition;

3. joint acquisition of a residential property by a HKPR with one or more non-HKPR close relative(s) (i.e. spouse, parents, children, brothers and sisters) each acting on his own behalf and none of them own any other residential property in Hong Kong at the time of acquisition; and

4. acquisition or transfer of residential properties between close relatives, whether or not they are HKPRs and beneficial owners of other residential property in Hong Kong at the time of acquisition or transfer.

Common exceptions for both residential and non-residential properties include the following:

1. acquisition or transfer of a property between associated companies;

2. acquisition or transfer of a property by or pursuant to a court order; and

3. inheritance of a property by the beneficiary of an estate under a will or the law of intestacy.

For more information on the exceptions to the New AVD, please refer to the FAQ for AVD on the website of Inland Revenue Department.[1]

Change of Residential Property

If a HKPR is acquiring a new residential property with the intention to dispose of his existing residential property, he will still be subject to the New AVD.However, if he can prove that the existing property has been disposed of within 6 months from the date of acquisition of the new property, then he may seek a refund of the difference between the stamp duty payable under the new and the old AVD rates.

Buyer’s Stamp Duty (“BSD”)

Residential properties acquired by an individual or a company on or after 27 October 2012 will be subject to the BSD, unless an exception applies.The BSD is charged at a flat rate of 15% on the consideration or the market value of the property, whichever is higher, payable on an agreement for sale.Only the buyer is liable to pay the BSD.

Despite fierce opposition from some groups in the society, the government maintained the stance that a limited company whose shareholders and directors are all HKPRs is still liable to pay the BSD.

Exceptions to the BSD

Under the Stamp Duty (Amendment) Bill 2012 (the “Bill”) which was gazetted on 28 December 2012, the major exceptions to the BSD include the following:

1. acquisition of a residential property by a Hong Kong Permanent Resident (“HKPR”) acting on his own behalf;

2. joint acquisition of a residential property by a HKPR with one or more non-HKPR close relative(s) (i.e. spouse, parents, children, brothers and sisters) each acting on his own behalf;

3. transfer of residential properties between close relatives, whether or not they are HKPRs, and each of them is acting on his own behalf; and

4. acquisition or transfer of a residential property between associated companies.

For more information on the exceptions to the BSD, please refer to the FAQ for BSD on the website of Inland Revenue Department.[2]

Special Stamp Duty (“SSD”)

While AVD and BSD are targeted at acquisition of a property, SSD is targeted at disposition of a property within a certain period of time.Residential properties acquired by an individual or a company between 20 November 2010 and 26 October 2012 and resold within 24 months will be subject to the old SSD while that acquired on or after 27 October 2012 and resold within 36 months will be subject to the new SSD, unless an exception applies.Both the seller and the buyer are liable to the SSD.

The SSD Rates

The applicable SSD rates on a property will depend on the date of acquisition of the property and the holding period of the property by the seller.Below is a table of the SSD Rates:

Exceptions to the SSD

Under the Bill, the major exceptions to the SSD include the following:

1. sale or transfer of a residential property to one or more close relative(s) (i.e. spouse, parents, children, brothers and sisters);

2. sale or transfer of a residential property between associated companies; and

3. sale of the estate of a deceased person which involves residential properties, and sale or transfer of a residential property by a person whose property is inherited from an estate under a will or the law of intestacy.

For more information on the exceptions to the SSD, please refer to the FAQ for SSD on the website of Inland Revenue Department.[3]

Transitional Arrangements

Before the gazettal of the amended Stamp Duty Ordinance, for AVD and SSD, the stamp duty will be charged by reference to the old rates first.After the gazettal, the additional stamp duty being the difference between the old rates and the new rates will have to be paid within 30 days of the gazettal.For BSD, it will be payable within 30 days after the gazettal.

Summary

For any stamp duty issue, there are three important questions to consider:

1. Whether the property in concern is a residential or non-residential property?If it is a residential property, then all AVD, BSD and SSD may be payable.On the other hand, if it is a non-residential property, then only AVD is payable.

2. What is the date of acquisition of the property in concern?For AVD, if the property is acquired on or after 23 February 2013, the new AVD rates will apply.BSD will be chargeable for property acquired on or after 27 October 2012.For SSD, the old SSD rates will apply for property acquired between 20 November 2010 and 26 October 2012 while the new SSD rates will apply for property acquired on or after 27 October 2012.

3. Does any exception apply?If yes, then depending on the situation, the stamp duty may be charged at the old rates or be exempted at all.