Newsletter March 2014 Property Stamp Duty on Property Transactions an Update Introduction In March 2013 we have published a newsletter entitled An Overview of Stamp Duty on Property Transactions, which outlined different stamp duty measures announced by the government to cool down the overheated property market. Those measures were announced pending related bills to be passed at the Legislative Council, which would take retrospective effect from the date of announcement. The Stamp Duty (Amendment) Bill 2012 has recently been passed in the Legislative Council, and the Stamp Duty (Amendment) Ordinance 2014 (the Amendment Ordinance ) was published in the gazette on 28 February 2014. The Amendment Ordinance would take retrospective effect and affects property transactions entered into on or after 27 October 2012. The major changes brought by the Amendment Ordinance include, inter alia, a higher rate of Special Stamp Duty and the introduction of the Buyer s Stamp Duty. Higher Rate of Special Stamp Duty ( SSD ) SSD is payable when the following 3 conditions are met:- 1. the transaction involves the sale and purchase or transfer of a residential property; 2. the property is acquired by the seller or transferor on or after 20 November 2010; and 3. the property is disposed of (which includes a resale or transfer) by the seller or transferor within 24 months (if the property was acquired between 20 November 2010 and 26 October 2012) or 36 months (if the property was acquired on or after 27 October 2012) from the date of acquisition). Exceptions to SSD Under the Amended Ordinance, 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) (s.29da(10) Amended Ordinance); 1
2. 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 (s.29da(11) Amended Ordinance); or 3. sale or transfer of a residential property between associated companies (s.29da(13) and s.45 Amended Ordinance). Rate The rate of SSD payable depends on (i) how long the time period between the acquisition and disposal of the property is; and (ii) the date of acquisition of that property. The Amended Ordinance now imposes a higher rate of SSD on disposal of properties which were acquired on or after 27 October 2012:- Holding period Acquired between 20 November 2010 and 26 October 2012 Acquired on or after 27 October 2012 6 months 15% 20% More than 6 months but for 12 months More than 12 months but for 24 months More than 12 months but for 36 months 10% 15% 5% N/A N/A 10% Buyer s Stamp Duty ( BSD ) BSD is payable if:- 1. the transaction involves the sale and purchase or transfer of a residential property; and 2. the chargeable agreement for sale is executed on or after 27 October 2012. Exceptions to BSD Under the Amended Ordinance, BSD is not chargeable under certain circumstances. Below are four of the more important exceptions:- 2
1. acquisition of a residential property by a Hong Kong Permanent Resident ( HKPR ) acting on his own behalf (s.29cb(2)(a), Amended Ordinance); 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 (s.29cb(2)(b), Amended Ordinance); 3. transfer of residential properties between close relatives, whether or not they are HKPRs, and each of them is acting on his own behalf (s.29cb(2)(c), Amended Ordinance); or 4. acquisition or transfer of a residential property between associated companies (s.29db(13) and s.45 Amended Ordinance). Rate BSD is calculated at a fix rate of 15% on the agreement value or market value, whichever is higher. Ad Valorem Stamp Duty ( AVD ) As mentioned in our newsletter issued in March 2013, the government planned to adjust the AVD upwards. This proposal as set out in the Stamp Duty (Amendment) Bill 2013 and not yet passed by the Legislative Council is subject to further amendments. Assuming that the Stamp Duty (Amendment) Bill 2013 would be passed as it now stands, the new AVD rates would apply retrospectively to transactions of both non-residential and residential properties acquired on or after 23 February 2013. Below is a table of the new AVD rates (subject to the marginal relief): Consideration or Market Value (whichever is higher) The new AVD Rates New AVD Rates Up to $2,000,000 1.50% $2,000,001 to $3,000,000 3.00% $3,000,001 to $4,000,000 4.50% $4,000,001 to $6,000,000 6.00% 3
$6,000,001 to $20,000,000 7.50% $20,000,001 and above 8.50% Exceptions to the new AVD Subject to the passing of the legislation, the followings are the major exceptions to the new AVD rates specifically applicable to residential properties: 1. acquisition of a residential property by a 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. Summary Both SSD and BSD apply only to residential properties. For those who have entered into transactions of residential properties between 27 October 2012 and 28 February 2014, the 4
SSD and/or BSD (if applicable) should be paid on or before 31 March 2014. For those who are contemplating buying or selling of residential properties, they should be vigilant in assessing whether SSD or BSD would be payable before entering into such transactions. It is also notable that new AVD rates are applicable to both residential and non-residential properties. Although the relevant bill for the new AVD rates has not yet been passed by the legislative council, it is expected to take retrospective effect just like SSD and BSD did, and hence parties should take this into consideration when negotiating sale and purchase of properties. For enquiries, please contact our Property Department: E: property@onc.hk T: (852) 2810 1212 W: www.onc.hk F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors. Published by ONC Lawyers 2014 5