Cancellation of "Spicy" Hong Kong Stamp Duty Measures

Summary

Despite cancellation of all "spicy" stamp duty measures, Hong Kong’s Stamp Duty Ordinance has not reverted to its old version. In particular, the rules governing exemption of stamp duty for "nomination" and “series of instruments with a common purchaser” remain changed since 2013 and continue to be operative. This legal update explores the implications of these rules in two scenarios.

Introduction

On 10 April 2024, the Hong Kong Legislative Council passed the Stamp Duty (Amendment) Bill 2024 (Bill); implementing Financial Secretary Paul Chan’s proposal announced in his February 2024 Budget to cancel all demand-side management measures for residential properties.

Coverage of that proposal featured in an earlier legal update published on 29 February 2024 (Hong Kong Budget 2024-25: Key Highlights of Property Measures).

Essentially, the Bill is confined to setting the respective rate of Special Stamp Duty (SSD) and Buyer’s Stamp Duty (BSD) to 0%; setting Ad Valorem Stamp Duty's (AVD) Part 1 of Scale 1 rates the same as AVD Scale 2 rates; and some other ancillary amendments.

Notably, it does not touch on most other provisions in the Stamp Duty Ordinance.

In other words, most of the added provisions to the Stamp Duty Ordinance since the first measure of SSD was introduced in 2010 are not abolished and remain in effect. 

The rules governing exemption of AVD have changed since 2013 and will continue to be operative in the future.

Regarding implications, in particular, two scenarios are commonly encountered: (1) nomination by purchaser; and (2) series of instruments with a common purchaser.

Nomination

Before 23 February 2013, a "nomination" made by a purchaser under an agreement for sale of immovable property in favour of one or more than one person who is a parent, spouse or child of the purchaser was not an "agreement for sale" within the meaning defined by the then section 29A(1) of the Stamp Duty Ordinance – and hence not chargeable for any AVD.

As an illustration, a purchaser of a residential property under an agreement for sale and purchase might, before completion, sign an instrument called ‘nomination’ to nominate their spouse to take up the assignment of the residential property.

Upon completion, the spouse would become the owner of the residential property instead of the purchaser. Such nomination was previously not chargeable for any AVD.¹

Currently, a nomination made by a purchaser of a residential property is not chargeable for any AVD only if:

(a) nominee is a close relative (i.e. parent, spouse, child, brother or sister) of the purchaser;

(b) nominee acts on their own behalf; and

(c) nominee is not a beneficial owner of any other residential property in Hong Kong.²

While the permitted nominee is expanded to include brother and sister of the purchaser, there are additional requirements that the nominee must be acting on their own behalf and must not own any residential property in Hong Kong. Otherwise, additional AVD is chargeable on the nomination.

Series of Instruments with a Common Purchaser

A vendor and a purchaser may enter into a series of instruments in respect of the same residential property. 

A typical example is a vendor and purchaser entering into a preliminary agreement for sale and purchase of a residential property at a sales or estate agent's office – followed later by a formal sale and purchase agreement for the same residential property for the same purchase price, at their respective solicitors' office.

In this example, AVD is charged once and not twice on the transaction.

Before 23 February 2013, a person and a parent, spouse or child of that person were treated as the same person for the purpose of charging AVD. 

To follow up from the previous example, after signing the preliminary agreement for sale and purchase, a purchaser might add their parent, spouse or child to sign the formal agreement for sale and purchase without incurring any additional AVD.³

Likewise, the purchaser might add their parent, spouse or child altogether to take up the assignment of the residential property, without incurring any additional AVD.⁴

Currently, a purchaser of a residential property and the additional person are treated as the same person for the purpose of charging AVD only if:-

(a) additional person is a close relative  (i.e. parent, spouse, child, brother or sister) of the purchaser;

(b) additional person acts on their own behalf; and

(c) additional person is not a beneficial owner of any other residential property in Hong Kong.⁵

Note: If the additional person already owns other residential property in Hong Kong, AVD is chargeable on the preliminary agreement for sale and purchase – and additional AVD is chargeable on the final agreement for sale and purchase.

As outlined here, the cancellation of all "spicy" stamp duty measures does not equate to reversion back to the previous version of the Stamp Duty Ordinance. The Bill also leaves flexibility for the Government to re-adjust AVD, SSD and BSD rates in the future.