RESIDENTIAL PROPERTY

Hong Kong stamp duty

Hong Kong’s property stamp duty leaves a gaping loophole

Stamp duty to be levied on total price of homes sold, housing bureau says, allowing first-time buyers of multiple properties to skirt tax

PUBLISHED : Monday, 07 November, 2016, 10:20pm
UPDATED : Monday, 07 November, 2016, 11:10pm

Hong Kong’s government, which more than doubled a stamp duty over the weekend to tame runaway real estate prices, has left a gaping loophole in the tax regime, allowing first-time buyers of multiple properties to get away with not paying the levy.

The tax ordinance collects stamp duty based on the total value of each instrument, or sales agreement, according to a statement by the Hong Kong Transport & Housing Bureau, in response to a query by the South China Morning Post.

“For a single instrument involving multiple residential properties, the Inland Revenue Department will regard the concerned residential properties as a single transaction,” according to the statement. The government has no plan to change the instrument-based stamp duty regime and will adopt the same arrangement on the new stamp duty charges, the statement said.

At least one Hong Kong buyer has already found and exploited the loophole.

Two days after the stamp duty was doubled to 15 per cent, a buyer bought four apartments on Sunday at the Met Bliss project in Ma On Shan for a lump sum of HK$19.93 million, agents said.

By lumping all four units under one agreement, the buyer -- who doesn’t own any other property and was considered a first-time buyer -- was able to skirt the new stamp duty, saving about HK$1.6 million in levies, agents said.

“The government should look into the issue and make clarifications,” said Eddie Hui, professor at the Hong Kong Polytechnic University’s Department of Building & Real Estate, adding that the loophole has undermined the intent of the new measure.

In a surprise move on Friday, Chief Executive Leung Chun-ying raised Hong Kong’s property stamp duty for the second time in three years, seeking to tame prices in the world’s least affordable major city. A standardised 15 per cent stamp duty was charged for all residential properties, if the buyer already owns one home.

The measure weighed on the share prices of Hong Kong’s major developers on Monday, with Cheung Kong Property Holdings dropping 8.8 per cent, while Sun Hung Kai Properties fell 9.8 per cent.

Still, the government’s measure hadn’t taken into consideration the tax department’s calculation. A buyer who doesn’t own any residential property in the city at the time of the purchase will be exempted from the new tax, and the new levy is calculated based on each sales agreement,or instrument.

“The tax authority has not yet issued guidelines on the new stamp duty. How they charge buyers is subject to the tax authority’s interpretation,” said conveyancing lawyer Alan Wong. “I would not recommend my clients to use this way to avoid tax.”

A homeowner failed recently to claim a stamp duty refund of more than HK$270,000, when he sold two small apartments to buy a bigger one in Ma Wan. He was charged the double stamp duty, which is a market-cooling measure that exempts owners who buy homes for their own use within 6 months of selling their previous property.

The owner launched a judicial review over the tax collector’s move. In February, the High Court awarded the owner the refund.

The tax department appealed and won the case at the end of last month. In allowing the appeal, the Court of Appeal asserted the term “original property” was not intended to refer to more than one property.