Article by Raymond M.W. Wong , Ellen Tsao and Fun-Kuen Au

Originally published 16 December 2010

Keywords: Hong Kong, special stamp duty, SSD

The Stamp Duty (Amendment) (No.2) Bill ("the Bill") in respect of special stamp duty ("SSD") was gazetted on 3 December 2010 and is in the process of review before the Legislative Council. The Legal Service Division Report dated 7 December 2010 suggests that the Legislative Council may wish to set up a bills committee to review and consider the concerns arising from the Bill.

A copy of the Bill can be obtained from the following website:

Most of the provisions of the amendment Ordinance are intended to become effective from 20 November 2010 instead of the date of enactment of the new law. Some provisions (e.g. cancellation of the existing provisions for the deferral of payment of stamp duty under section 29C of the Stamp Duty Ordinance ("SDO")) are intended to apply from the date of gazette of the amendment Ordinance.

According to the Legislative Council Brief for the Bill prepared by the Transport and Housing Bureau dated 1 December 2010, the objectives of the proposed new measures are to "curb short-term speculative activities by substantially increasing the costs to speculators, reduce the risk of the development of an asset bubble and ensure the healthy and stable operation of the property market". The Brief goes on, "genuine home buyers and long term investors should not be affected by those measures".

However, from our study of the Bill, we have discovered that it suffers from a number of deficiencies which may cause collateral damage to non-speculators, and result in unintended consequences. These legal issues are discussed below.

"Acquisition", "Disposal" and "Holding Period"


The SSD will apply where there is a disposal of residential properties acquired on or after 20 November 2010, and the disposal is within 24 months of the acquisition.

Clauses 29CA(4) and 29DA(7) of the amended SDO state that a person "acquires" any residential property when equitable ownership or legal ownership of the property is passed to the person (whichever occurs first).

The meaning of "disposes of" is provided in Section 29CA(6) and section 29DA(9), and is similar to "acquire", except that it operates in reverse.

(a) "Equitable Ownership"

The Inland Revenue Department ("IRD") previously expressed the view that "acquisition" is linked to whether or not an agreement for sale and purchase contains a clause providing for specific performance. The IRD has since clarified and accepted that a specific clause referring to specific performance is not required to make an agreement specifically enforceable. The IRD notes that the intention is to refer to an instrument where each party can compel the other party to purchase/sell the property.

Unfortunately, the term "equitable ownership" in the Bill is still ambiguous.

The existing Section 26 of the SDO uses the term "equitable estate or interest" to describe the estate or interest which passes under a contract or agreement for sale. Section 29A has a definition of "agreement for sale" which lists those documents that may constitute a chargeable instrument. The Conveyancing and Property Ordinance has another meaning for "equitable interest" held by an owner.

There is a need to be consistent, and to avoid causing possible misinterpretation. We suggest that for the purpose of SSD, either a specific new definition is provided or the alternative term "equitable estate or interest" should be adopted.

(b) Statements of Date of Acquisition, Disposal and Holding Period by the Parties and the Solicitors

Solicitors and the parties to a relevant transaction will be required to make statements as to the dates of acquisition and disposal by the vendor, and length of holding period.

This information needs to be inserted in the sale and purchase document and supplied to the Stamp Office at the time of stamping of the provisional agreement or the formal agreement. The stamping application form is usually filled out by the purchaser/purchaser's solicitors. However at that stage, the title deeds may not yet be available for inspection to ascertain the date of the vendor's acquisition. Also, the vendor may not be able to produce its earlier provisional agreement or formal agreement (especially if such document was not registered at the Land Registry). Even if a vendor does produce such documents, the purchaser/purchaser's solicitors have to make a determination as to which document was the one under which the vendor effectively "acquired" the property. This requirement is not only unfair for the purchaser, it may cause difficulty and delay in the stamping process.

A purchaser should not be inconvenienced or penalised in this process, as the legislation is targeted at the vendor.

(c) Supplemental Agreement for Sale and Purchase and Confirmatory Assignment

It is common for parties to sign:

  1. a supplemental agreement to a formal agreement for sale and purchase (especially in pre-sale cases where the developer may have adjusted undivided shares or sometimes, even the property description);

  2. a confirmatory assignment to clarify the property description, to rectify a defect or to properly vest the legal estate of the property in the purchaser.

The question is: whether the date of acquisition of the property for the purpose of SSD is the date of the supplemental agreement or confirmatory assignment, or the date of the original document? This has significant impact on the owner and must be clarified in the legislation.


There may be other situations where the date of acquisition, date of disposal and the holding period ("Relevant Facts") are uncertain.

To protect members of the public (and their legal representatives) from making the wrong determination or falling into the trap of making false statements in relation to a chargeable instrument (which is potentially a criminal offence), the Government should establish a new mechanism for a ruling on the Relevant Facts. This could be achieved by extending the ambit of section 13 of SDO. Section 13 currently allows only the amount of stamp duty to be adjudicated by the Stamp Office and only then in relation to an executed instrument. A new mechanism will enable parties to know in advance whether a liability to SSD will arise, even before they enter into a transaction. It will also protect parties from the risk of making false statements.

Joint and Several Liability for Both Vendor and Purchaser


SSD is based on the stated consideration for the sale or the market value of the property at the time of disposal as assessed by IRD, whichever is the higher.

A purchaser should ensure that the obligation to pay any SSD is passed to the vendor in the first relevant provisional or formal agreement it enters into.

However, even if a vendor has paid the SSD based on the stated consideration, the Stamp Office may, several months or even years later, demand additional SSD due to the inadequacy of the consideration stated in the agreement for sale. It will be difficult if not impossible for the purchaser to procure payment by the vendor for the additional SSD. Yet, under the proposed legislation, the purchaser will be made also liable.

This is a real practical problem.

This situation is highly unsatisfactory and inequitable for the purchaser and may also hinder subsequent dealings with the property, as it will not be clear whether or not the agreement has been "duly stamped" or if additional SSD is still being assessed or is due and payable.

Our suggestion is to make the additional SSD a personal liability of the vendor only, and not to make it a liability for the purchaser or affect title in the property or subsequent dealings. There could also be a cut off time for limiting the Government's right to claim for any additional SSD.

Apportionment of Value or Consideration


Section 29DA(3) of the amended SDO will state that:

"If only part of the residential property is acquired within the 24-month period, special stamp duty is chargeable only by reference to that part."

If a vendor sells several properties to a purchaser in one single transaction and part of the properties were acquired by the vendor within the 24-month period ("the first part") whereas the reminder of the properties were not ("the second part"), SSD will be chargeable on the disposal of the first part only.

This means the vendor and the purchaser will need to split up the sale consideration for the purpose of the SSD. This is problematic as the value of the first part and the second part may not be separately ascertainable, short of a proper valuation report, not to mention there may be a bulk discount element.

Re-Calculating the Date of Acquisition


The terms of current Land Grants usually provide for a "one assignment clause" which allows the developer/Land Grantee to assign the whole Lot once without the consent of the Director of Lands.

It is not uncommon that developers in Hong Kong rely on such a clause to assign the whole lot to another company within the group before the pre-sale of the units of the development begins. The parties would usually make use of Sections 45 & 29H(3)of SDO to claim exemption of payment of ad valorem stamp duty in such circumstances.

The Government should clarify that the date of acquisition for an intra-group transfer of property between associated companies runs from the date of the Land Grant, being the date of acquisition by the transferor and not the date of the acquisition by the transferee under the intra group transfer document.



These issues were covered in our previous legal update which is available online (

In short, enforcement by mortgagees and owners of an old building sold under a compulsory sale will be unfairly affected by SSD.



As mentioned above, the Bill suffers from various deficiencies.

If these issues are not addressed, there will be uncertainties in the interpretation of the amended SDO, unfairness to property owners, and other consequences not intended by the Government in its imposition of SSD. The uncertainties will also give rise to disputes between property owners and the Stamp Office, hinder normal property transactions, and create title issues.

The Government has said that SSD is needed to "curb short-term speculative activities" and not to affect "genuine home buyers and long term investors".

The Government and the members of the Legislative Council must thoroughly consider these issues and ensure there will be no collateral damage caused by the legislation.

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