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Estate Duty
- Revenue (Abolition of Estate Duty) Ordinance 2005
- General
- Exemption
- Matrimonial Home Exemption
- Procedures to Obtain Estate Duty Clearance
- Certificate of Payment or Exemption
- Provisional Estate Duty Clearance Papers
- Issue of Assessment
- Appeal against Assessments
- Delay in Lodging Affidavit
- Small Estates
- Table of Rates
- Interest
- Marginal Relief
- Quick Succession Relief
- Penalty on Intermeddling
- Forms
- Enquiries
Revenue (Abolition of Estate Duty) Ordinance 2005
The Revenue (Abolition of Estate Duty) Ordinance 2005 ["the Ordinance"] comes into effect on 11 February 2006. No estate duty affidavits and accounts need to be filed and no estate duty clearance papers are needed for the application for a grant of representation in respect of deaths occurring on or after that date. The estate duty chargeable in respect of estates of persons dying on or after 15 July 2005 and before 11 February 2006 ("transitional estates") with the principal value exceeding $7.5 million will be reduced to a nominal amount of $100.
To ensure that the family or dependents of persons who passed away on or after 11 February 2006 will not be affected by the changes in procedures arising from the abolition of estate duty, the Ordinance empowers the Secretary for Home Affairs ["SHA"] to provide certain support services for estate beneficiaries.
For further information about the support services, please click here.
Estate Duty is charged, according to a sliding scale of rates which vary with the date of the deceased's death on the total value of the property situate in Hong Kong which "passes" or is deemed to pass in connection with a person's death, or at the amount of $100 (for transitional estates).
In broad terms, the word "passes" means "changes hands" i.e. where the beneficial ownership, possession or enjoyment of property is derived by one person in consequence of another's death.
Properties liable to estate duty includes:-
- everything the deceased owned;
- the deceased's share of property jointly owned with others; and
- property which the deceased gave away at any time during the three years immediately before his death. The recipients of the gifts are required to account for the duty.
Jointly owned properties are subject to estate duty notwithstanding that its ownership goes to the survivor upon the death of a joint owner. Therefore the surviving joint owner must file an Account for the Commissioner (IRED 12) to account for the estate duty in respect of the joint properties before a clearance can be obtained.
Exemption from Estate Duty is allowed for the following:-
- Foreign assets;
- Donations to or for the benefit in Hong Kong of any approved charitable institutions or to the Government of the Hong Kong Special Administrative Region for charitable purposes;
To download the application form, please click here; - Any pension, annuity, lump sum, gratuity or other like benefit (including any right or entitlement thereto) which passes on the death of a deceased member of a recognized occupational retirement scheme;
- Any property consisting of the benefits under a policy of insurance effected on the life of the deceased;
- Any property consisting of the benefits under a provident fund scheme registered under the Mandatory Provident Fund Schemes Ordinance;
- Property held by the deceased as trustee only in which he never had any beneficial interest at any time during the 3 years immediately before his death; and
- As regards deaths on or after 1 April 1994, exemption is allowed of actual burial expenses incurred in Hong Kong, up to a maximum of $50,000.
Estate Duty shall not be payable in respect of property :-
- which was, immediately before the death of the deceased :
- a residence owned by him and occupied by him exclusively for residential purposes; and
- the matrimonial home of the deceased and his spouse; and
- which is devised or bequeathed by the deceased, or otherwise passes on his death, to or for the benefit of his spouse.
The property to which (1) above applies shall be deemed to have passed on the death of the deceased to or for the benefit of his spouse if he died intestate as to that property and is survived by his spouse.
To download the application form, please click here.
Procedures to Obtain Estate Duty Clearance
Unless the Official Administrator will administer an estate, in most cases not exceeding $150,000 and consists of money (e.g. bank deposits), in a summary manner (for details please refer to 'How to Apply for Grants of Representation' issued by the Judiciary), it is necessary for the deceased's relatives to obtain an estate duty clearance before they can apply for a probate or letters of administration. If the estate is substantial or if complication exists, it is best for them to seek legal advice without delay.
The intending executor/administrator has to file either one of the following returns :-
| (1) | An Affidavit for the Commissioner (Form IRED 1); |
| (2) | Statement in Lieu of Affidavit (Form IRED 63A); |
| (3) | An Account for the Commissioner (Form IRED 12); |
within six months of the date of death of the deceased together with payment of the duty, if any. If the delivery of an affidavit/account is delayed beyond 12 months from the death, estate duty will be charged at twice the applicable rate. As the estate duty affidavits have to be completed with all the proper solemnities (i.e. under oath), the filing of them by electronic means is not accepted. Submission by fax is also not acceptable.
Affidavit/account in loose-leaf form is also not acceptable, as there is no evidence that a deponent's oath/affirmation attends to the whole document, unless the deponent/affirmant and the attesting solicitor/Commissioner for Oaths sign each and every page of the document.
To download the above forms, please click here.
The following documents with a copy of each are required when applying for Estate Duty Clearance:-
| (1) | death certificate, burial certificate or other document evidencing death; |
| (2) | deceased's identity card; |
| (3) | applicant's own identity card; |
| (4) | documents relating to the assets and liabilities of the estate; and |
| (5) | the will, if any. |
However, if the deceased held a safe deposit box with a bank (either in sole or joint names), the intending executor or administrator must call or write to the Estate Duty Office to arrange an appointment for taking an inventory of the contents of the safe deposit box beforehand. The safe deposit box should not be opened nor any articles be removed from it after the death of the deceased without authority from the Estate Duty Office.
Certificate of Payment or Exemption
No probate or letters of administration shall be issued by the Court until the Commissioner shall have certified in writing that the estate duty payable by the executor upon the estate in respect of which probate or letters of administration is sought has been paid or that he has allowed payment thereof to be postponed, or that no estate duty is payable in respect of the estate.
Where the executor does not know the amount of value of any property, he may state in the affidavit that such property exists and that, as soon as the amount or value is ascertained, he undertakes to pay the estate duty.
Provisional Estate Duty Clearance Papers
Where Certificate of Payment or of Exemption cannot be issued within a reasonable period of time, e.g. due to tracing of life time gifts, protracted negotiations on valuation of land or shares or where interest in a pre-deceased's estate is involved, the executor/administrator can apply to the Commissioner for Provisional Clearance Papers upon production of satisfactory guarantee (bank guarantee, equitable mortgage of properties, deposit of quoted shares, transfers of bank account balances as payment on account, etc.). The executor/administrator can then proceed with the application for the grant without delay.
Please refer to the following specimen for providing security:
When the total value of the estate (inclusive the free estate, the joint properties, gifts etc.) has been ascertained, each person accountable for the duty will be notified by means of a certificate of assessment for the balance of duty and interest.
Any person to whom an assessment has been issued may appeal to the High Court within 3 months from the date of issue of the assessment on the ground that:-
- he is not the accountable person;
- he disagrees the valuation of any property; or
- he disagrees the rate or amount charged.
Where the value of the property in dispute does not exceed $200,000, the appeal shall be to the District Court.
Payment or giving security for the duty claimed is a condition of an appeal. The Commissioner has power to postpone payment and the High Court or the District Court hearing the appeal may also dispense with the payment of duty as a condition of the appeal on the ground of hardship to the appellant.
Affidavits and Accounts are required to be submitted to the Estate Duty Office and duty thereon shall be due on the delivery thereof or on the expiration of six months from the death, whichever happens first. If delivery is delayed beyond twelve months from the death, the rate of duty or the amount of duty will be doubled unless there is reasonable excuse for the delay.
Simplified procedures apply to some small estates which do not exceed $400,000. With exceptions, the executor or applicant for succession to a small estate is only required to complete a "Statement in lieu of Affidavit" (IRED 63A) at the Estate Duty Office. In the great majority of cases, a Certificate of Exemption will be issued within six weeks, together with an official letter advising the applicant exactly what he should do next. This procedure does not apply where the estate includes an interest in land, an interest in a business, shares (except shares quoted on Stock Exchange), or where litigation is contemplated.
To download IRED 63A, please click here.
A different procedure applies to very small estates valued at less than $150,000. The applicant should approach the Probate Registrar to enquire whether his office would informally administer the estate. However, these simplified procedures do not apply where the estate consists of any interests in business or land.
| Persons Dying | Where the Principal Value of the Estate | Estate Duty Rate or Amount |
Maximum value beyond which "marginal" relief does not apply
|
||
| on or after | before | Exceeds | Does not exceed | ||
| 1 April 1996 | 1 April 1997 | - | $6,500,000 | Exempt |
-
|
| $6,500,000 | $8,000,000 | 6% |
$6,914,800
|
||
| $8,000,000 | $9,500,000 | 12% |
$8,545,400
|
||
| $9,500,000 | - | 18% |
$10,195,100
|
||
| 1 April 1997 | 1 April 1998 | - | $7,000,000 | Exempt |
-
|
| $7,000,000 | $8,500,000 | 6% |
$7,446,808
|
||
| $8,500,000 | $10,000,000 | 12% |
$9,079,545
|
||
| $10,000,000 | - | 18% |
$10,731,707
|
||
| 1 April 1998 | 15 July 2005 | - | $7,500,000 | Exempt |
-
|
| $7,500,000 | $9,000,000 | 5% |
$7,894,736
|
||
| $9,000,000 | $10,500,000 | 10% |
$9,500,000
|
||
| $10,500,000 | - | 15% |
$11,117,647
|
||
| 15 July 2005 | 11 Feb 2006 | $7,500,000 | - | $100 | - |
Please note that the rate of duty is applicable to each and every component of the estate. For illustration, see example below: -
| Assets |
Value as at 4 April 2002
(Date of death) |
| Shares |
$2,000,000
|
| Bank accounts |
3,000,000
|
| Landed property |
8,000,000
|
| Gift |
500,000
|
| Principal value of the estate |
$13,500,000
|
Estate duty payable on $13,500,000 @ 15% = $2,025,000 (Excluding interest)
Interest accrues on unpaid duty at 4% per annum from the date of death until the expiration of 6 months from the death, and at 8% per annum thereafter.
There is provision for marginal relief to prevent hardship where a very small increase in the value of an estate may otherwise result in a large additional liability. It is available at the commencement of each estate duty rate band to relieve hardship in marginal cases (by applying the next lower rate on the respective ceiling value (i.e. $7.5 million, $9 million and $10.5 million) plus a 100% rate on the remainder). The following examples illustrate the extent of the marginal relief in different scenarios: -
Example 1
Date of death: 31 March 2002
If estate value = $7.6M
Estate duty without relief = 5% on $7.6M = $380,000
Estate duty with relief = Exempt $7.5M + 100% on ($7.6 - $7.5)M = $100,000
Amount relieved = $280,000
Example 2
Date of death: 31 March 2002
If estate value = $9.5M
Estate duty without relief = 10% on $9.5M = $950,000
Estate duty with relief = 5% on $9M + 100% on ($9.5 -$9)M = $950,000
Amount relieved = $0
Example 3
Date of death: 31 March 2002
If estate value = $11M
Estate duty without relief = 15% on $11M = $1,650,000
Estate duty with relief = 10% on $10.5M + 100% on ($11 - $10.5)M = $1,550,000
Amount relieved = $100,000
The maximum estate value for which the margin relief is applicable for the three current estate duty rate bands are arithmetically capped respectively at:-
| Exceeds $7.5M but does not exceed $9M | $7,894,736 |
| Exceeds $9M but does not exceed $10.5M | $9,500,000 |
| Exceeds $10.5M | $11,117,647 |
Where Estate Duty becomes payable a second time within five years on any leasehold property, or on a business (not being a business carried on by a company), or any interest in leasehold property or such a business, because of the death of the person to whom it passed on the first death, the amount of estate duty payable on those assets on the second death is reduced as follows :-
| Second death within | Estate Duty reduced by |
| 1 year of first death | 50% |
| 2 years of first death | 40% |
| 3 years of first death | 30% |
| 4 years of first death | 20% |
| 5 years of first death | 10% |
Penalty on Intermeddling
Any person who intermeddles (i.e. takes possession of or in any way administers any part of the estate of a deceased person or any part of the income of such estate without first delivering to the Commissioner of Estate Duty the relevant affidavit/account) shall be liable to a penalty of $10,000 and to a further penalty equal to three times the amount of duty payable upon the whole estate of the deceased.
In respect of transitional estates, the calculation of penalties for intermeddling will still be based on the existing rates scale, i.e. 5%, 10% or 15% of the principal value of the estate.