Pay close attention to stamp duty when buying property in Hong Kong

• Since property transactions usually involve large sums of money and buyers bear the cost of stamp duty, they are advised to carefully research what category they fall under and not just rely on property agents

I would like to share a case regarding stamp duty liability so as to remind both property agents and consumers of the importance of understanding the types and amount of stamp duty payable before entering into any provisional agreement for sale and purchase.

An agent introduced an industrial property to a prospective buyer. When asked about the ad valorem stamp duty payable on the transaction, the salesman told her that she did not have to pay any stamp duty if she sub-sold the property as confirmor before completing the purchase.

Based on the information, she went ahead and signed a provisional deal.

Later, upon signing the formal agreement for sale and purchase, the buyer was advised by her lawyer that regardless of whether she sub-sold the property as confirmor or not, she was still liable to pay the stamp duty for buying the property. The buyer asked the salesman about it again who realised that he had made a mistake. She did not complete the transaction and her deposit of more than HK$200,000 (US$25,500) was forfeited to the vendor.

The disciplinary committee of the Estate Agents Authority (EAA) was of the view that the salesman made a misrepresentation on the ad valorem stamp duty. He was in breach of paragraph 3.7.2 of the Code of Ethics issued by the EAA, which stipulates: “Estate agents and salespersons should avoid any practice which may bring discredit and/or disrepute to the estate agency trade.”

The committee decided to reprimand him and attach a condition to his licence, requiring him to obtain 12 points from activities under the Continuing Professional Development Scheme within 12 months.

Property transactions usually involve large sums of money and the amount of stamp duty may be huge. As the buyer is often the party responsible for payment of all the stamp duties in a conveyancing transaction, the amount to be paid may affect an individual’s financial arrangement and buying decision.

Hence, buyers should not only rely on property agents but are also advised to conduct their own research on the kinds of stamp duties, such as the Ad Valorem Stamp Duty for residential properties vs non-residential properties, Special Stamp Duty and Buyer’s Stamp Duty, applicable in different situations.

For example, it is very important to understand the statutory definition of Hong Kong permanent resident (HKPR) as the rate payable by a HKPR is different for certain categories of stamp duties.

HKPR refers to someone who holds a valid Hong Kong permanent identity card. It also includes the aged, the blind or the infirm who are not required to register or apply for a Hong Kong permanent identity card but are entitled to be issued with one if they apply for it.

The government has received enquiries and complaints from some successful applicants under the Quality Migrant Admissions Scheme who encountered unpleasant experiences when buying property in Hong Kong.

Recently there was also an appeal case against the Collector of Stamp Revenue for refusing to grant an ad valorem stamp duty refund on the appellant’s newly bought property.

The case shows how important it is for the buyer to understand the definition of HKPR, particularly when a person qualifies for it or is in the process of applying for a Hong Kong permanent identity card but has not obtained it yet.

Moreover, property agents should not advise their prospective clients on whether they are HKPR, but should seek legal advice on their liability for payment of stamp duty before entering into any PASP.

In addition, I would like to stress how important it is to understand the taxes involved in purchasing properties situated outside Hong Kong.

As taxation systems vary from place to place, the types of taxes for buying, selling or leasing of property will also be different.

In particular, the calculation of tax for foreign buyers may be different from local buyers, which could affect the return on investment. For example, what kind of taxes should one be aware of when buying residential property in the UK?

To help non-resident individuals investing in the UK better understand the main taxes which may be levied on them, the revenue and customs department issued a guidance note for property agents in Hong Kong so that they may tell their clients of their tax obligations. Interested parties may visit the EAA’s consumer education website at http://smart.eaa.org.hk to read the note in detail.

(9 April 2019)