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Introduction
On 2 November 2005, the Legislative Council in Hong Kong passed the Revenue (Abolition of Estate Duty) Bill 2005 seeking to amend the Estate Duty Ordinance ("EDO") with a view to abolish estate duty in Hong Kong. By abolishing estate duty, it is hoped that Hong Kong can attract more local and overseas investors to hold assets in Hong Kong and can further promote the development of Hong Kong as a trust and an asset management centre. The Revenue (Abolition of Estate Duty) Ordinance (the "Ordinance") will commence operation on 11 February 2006.
Persons who died on or before 14 July 2005
Persons who died on or before 14 July 2005 will still be subject to the existing EDO.
Under the current EDO, estate duty is based on the territorial principle and is levied on property situate in Hong Kong. The deceased's nationality, residence or domicile are completely irrelevant in determining on whether or not estate duty is payable. Estate duty is levied at progressive rates with no estate duty being payable if the value of the estate situate in Hong Kong is less than HK$7,500,000 and a maximum rate of 15% being levied on the value of assets exceeding HK$10,500,000.
Interim period - for persons dying between 15 July 2005 and 10 February 2006
Persons who die during this interim period will be subject to estate duty chargeable at a nominal rate of HK$100 if the taxable value exceeds the exemption threshold of HK$7,500,000.
The reason for having such interim period is mainly to allow sufficient time to review and align internal procedures with the new regime, such as regarding the inspection of safe deposit boxes and the handling of bank accounts of deceased individuals.
In addition, the charging of this nominal duty is to ensure that the existing legislative provisions and legal documents making reference to the actual charging and payment of estate duty will not be put in doubt. Any estate duty overpaid in the interim period will be refunded.
Persons dying on or after 11 February 2006
Estate duty will be completely abolished for estates of those persons who die on or after 11 February 2006.
The procedures for obtaining grants of probate and letters of administration will also be simplified. The Ordinance also repeals the provision for fees payable for grants of probate, letters of administration or resealing of the same in respect of the estates of those persons who die on or after 11 February 2006.
Nevertheless, in the absence of the estate duty assessment procedure following the abolition of estate duty, in order to continue to safeguard the beneficiaries, there are five provisions introduced to safeguard beneficiaries :-
| (1) |
criminal offences have been included to deter intermeddling with the estate without lawful authority or reasonable excuse; |
| (2) |
personal representatives are required to prepare an inventory of the estate; |
| (3) |
to ensure that the family or dependents of the deceased in financial difficulties can meet funeral expenses or their own living expenses, the Secretary for Home Affairs can authorize the release of money from the deceased's bank account to meet funeral expenses or the maintenance of any person who was dependent on the deceased before his death and has an interest in the estate; |
| (4) |
measures can be taken to facilitate inspection of the safe deposit box of the deceased by the personal representative and beneficiaries before issue of the grant; and |
| (5) |
there is a mechanism to exempt persons dealing with small estates from the intermeddling provisions with a view to achieve a balance between safeguarding the interest of the beneficiaries and obviating an unnecessary burden for the personal representative. |
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