Is stamp duty payable on the distribution of property under an estate over and above the rights of the beneficiaries?

In a recent decision of the Court of Appeal, a consent to enter into an agreement for a distribution arrangement of an estate is not subject to stamp duty.

Background

Wong Suet Foon Shirly v Collector of Stamp Revenue

A lady died on 20 February 2012 intestate. The only persons entitled to the deceased’s estate were her five surviving children, including the appellant. The deceased was a registered owner of a public housing flat purchased under the Hong Kong Housing Authority’s Tenants Purchase Scheme, which restricts the transfer of flats.

On the advice of the Hong Kong Housing Authority’s staff (i.e., that only two of the children could become successor owners of the property, which later proved to be incorrect), the five surviving children entered into an estate settlement agreement. Pursuant to this agreement, the three surviving siblings agreed to relinquish their interest in the property and leave it to the appellant and another surviving daughter of the decedent. The appellant, as administrator of the deceased, signed a consent under the appeal agreement to vest and transfer the property to herself and to the daughter of the deceased who would also inherit the property.

The appeal agreement and the consent were submitted to the Collector of Stamp Revenue for determination. The Collector was of the opinion that the Appeal Agreement and the Consent were both dispositions of gratuitous property within the meaning of section 27 of the Stamp Duty Ordinance and were chargeable with stamp duty of HK$16,650.

The Collector of Stamp Revenue held that since the Appellant was acting in the capacity of an administrator and not in his personal capacity when he executed the Consent, a higher ad valorem rate of stamp duty – Standard Rate 1 would apply to the Consent of Appeal. The lower ad valorem stamp duty – standard rate 2 did not apply to transfers of residential property between close relatives.

The Appellant appealed to the District Court against the assessment of stamp duty. The District Court ruled in favor of the Collector of Stamp Revenue. The Appellant appealed to the Court of Appeal against the judgment.

Dispute

The issue in dispute is:

Whether the said consent amounted to a disposal without consideration within the meaning of section 27 of the Stamp Duty Ordinance and was chargeable with stamp duty?

If so, should the lower ad valorem stamp duty – Standard Rate 2 apply?

The Ruling

The Court of Appeal reversed the decision of the District Court and ruled in favor of the appellant. On July 29, 2021, the Court of Appeal issued its reasons for judgment in the case.

The Court of Appeal held that the agreement was a disclaimer, not a transfer or assignment, and did not vest a beneficial interest in the property until it was consented to. After the death of the deceased, the surviving children had nothing to convey by deed. Therefore, the agreement was not subject to ad valorem stamp duty. The Court of Appeal further pointed out that the Consent to Appeal was also not chargeable with ad valorem stamp duty under section 27(1) of the Stamp Duty Ordinance.

The Court of Appeal also rejected the view of the Collector of Stamp Revenue. The law provides that a beneficiary is free to reject or disclaim a gift made to him because the law cannot compel a person to take an estate against his will. If an intended beneficiary renounces his benefit, the administrator should exclude him from consideration of the administration of the estate as if he did not exist or had never been named as a beneficiary. The administrator should distribute the estate to the remaining beneficiaries in accordance with the relevant legislation.

The current situation is no different than if the intended beneficiary had died before the estate was administered and distributed. The administrator would simply exclude him and distribute the estate to the remaining beneficiaries.

Conclusion

The Court of Appeal’s decision departs from the longstanding practice of the Collector of Stamp Revenue that where a consent confers effects on a beneficiary in excess of the beneficiary’s entitlement, the consent is treated as an assignment voluntarily disposed of inter vivos and stamp duty is assessed on the excess entitlement.

On the distribution of an inherited residential property, the Stamp Office now charges stamp duty at the lower ad valorem stamp duty – 2nd standard rate and exempts the purchaser from stamp duty where there is a close relationship between the deceased and the beneficiary. If you are in any doubt, please consult a tax or legal professional.