A bird in the hand may cost you a flock
I'm buying a Hong Kong residential property. Should I buy it in my own name or through a company and trust arrangement?
If you are a permanent resident with no other residential property and you buy in your own name, your stamp duty rates are half the new rates and you are exempt from the 15 per cent buyer's stamp duty announced last October. On a HK$10 million property purchase you save HK$1.875 million in stamp duty.
If you are a permanent resident with residential property and you buy in your own name, you pay stamp duty at the new rates but not buyer's stamp duty. On a HK$10 million property you save HK$1.5 million.
In both cases you can claim allowances against rental income for property outgoings without detailed records. Things are simple, paperwork and costs are limited and you own the property.
If the property is bought through a company, things are more complicated and, initially at least, more expensive. Full stamp duty and buyer's stamp duty are payable. The company owns the property and you own shares in the company. You pay to establish the company and for annual accounting, audit and compliance costs.
These can be heavily offset by company tax breaks, flexibility in selling assets or shares, and the limiting of liability to company assets. The last is compelling if you want to protect other assets from creditors.
Similarly, if the property is bought through a trustee arrangement, even if it's just a friend agreeing to buy the property on your behalf, full stamp duty and buyer's stamp duty are payable. The trustee owns the property and will manage it according to an agreement which may state that this is to be for your benefit.
Carolyn Butler, chief executive of The Hong Kong Trust Co, a professional trustee, says trusts provide flexibility and better outcomes for succession planning, business cohesiveness, family mediation and limiting professional liability. For the best outcome, she suggests owning property through a company and transferring the company shares into a trust.
If you are a permanent resident, buying in your own name and saving stamp duty ups the ante on buying through a company or trust. Take a long-term strategic view of your likely requirements and weigh up expected future benefits against short-term gains. A bird in the hand now might be at the expense of a flock later.
Having done that, if you still decide to buy in your own name, claiming exemption from the new stamp duties because you have no other residential property, you must sign a declaration to this effect. The stamp duty office checks your declaration against its available information including Land Registry records.
It's not clear to what extent it scrutinises existing company and trust structures. It's possible those already holding property through Hong Kong registered companies are at a disadvantage to companies registered elsewhere.