Scrapping of estate tax boosts sector

THE ABOLITION OF estate duty in Hong Kong has given the trust business a boost by opening a wider range of strategies and structures, practitioners say.

'Previously, we did Hong Kong estate planning with a tax focus, but now we have a freer hand in how to devise succession structures, which gives us more flexibility, for instance, in allowing a client to retain assets over his lifetime so he is comfortable about not losing control,' PricewaterhouseCoopers tax partner John Wong said.

The flexibility now available to trust experts was a direct result of the scrapping of estate duty, which became effective on February 11 this year.

Under the new dispensation, duties in respect of deaths occurring between July 15 last year and February 10 this year with a taxable estate value exceeding HK$7.5 million are reduced to a nominal HK$100.

'Previously, we had to use an irrevocable discretionary trust arrangement to achieve estate duty minimisation,' Mr Wong said.

But trust practitioners now had more tools at their disposal as a result of the scrapping of the duty, he added.

'For example, in the past if you did not use an irrevocable discretionary trust you would have exposure to estate duty. But now the trust structure can be a reserved power trust, or a settlor-directed trust or a revocable trust, or even a foundation or family asset holding vehicle to achieve consolidation of planning. The outcome is that trusts can now be structured to allow the settlor more control during his lifetime.'

Herbert Tsoi, of Herbert Tsoi & partners, said that the scrapping of estate duty had created new opportunities for the sector in Hong Kong.

'Together with Hong Kong's low and simple tax regime, the abolishment of estate duty opens new opportunities for trusts in the sense that [the territory] could now become a tax haven for citizens of other countries,' Mr Tsoi said. He is the chairman of the probate committee of the Law Society of Hong Kong.

'There could also be many other reasons to set up a trust, including getting your investments into a more favourable tax regime or creating a shelter in the case of matrimonial disputes or political instability. It could also be to create a shelter to keep some of the family wealth if a really aggressive business plan is embarked upon that could end up in a bankruptcy situation,' Mr Tsoi said.