property_owners


<p>Despite ending a rocketing streak, Hong Kong&#8217;s home prices still remain one of the most expensive in the world and, hence, stamp duty is a considerable expense for homebuyers. After the implementation of double stamp duty in 2013 and the increase of property stamp for second-home buyers to 15% in 2016, homeowners began transferring the title of a property from joint ownership to single ownership. Doing so enables them to restore the “first-time purchaser” status for one party in order to re-enter the property market without paying the additional tax.</p>



<p>Notably, a study by QFang indicated that transactions involving close relatives constituted over 10% of the second-hand residential transactions in the first seven months of last year.&nbsp; The same study indicated that this has increased in recent months and was 16% of all second-hand sales in July.&nbsp; This may indicate that some buyers are optimistic about the market outlook and are preparing to make a new purchase by restoring their “first-time purchaser” status.</p>



<h2>How much can you save with the first-time buyer status?&nbsp;</h2>



<p>A person (HKPR) holding a property as a joint proprietor or individual owner may transfer (sell) their ownership of the property to a close relative such as a parent, sibling, spouse or child. This “close relative” status exempts the relative from paying the 15% Ad Valorem Stamp Duty (AVD).&nbsp; The transaction is subject to Stamp Duty based on the determined value of the property, but the person (transferor) becomes eligible for first-time buyer status, exempting them from the 15% (AVD) on a future purchase.</p>



<p>For example, a couple jointly owns a property with a market value of HK$6 million. The husband transfers the title of the property to his spouse. The total amount of tax rate payable is HK$45,000 ($3,000,000 x 1.5%). Later, the husband purchases a residential unit with a market value of HKD$8 million as a first-time buyer, avoiding the 15% AVD (HK$1.2 million), instead paying only the 3.75% stamp duty (HK$300,000).&nbsp; This results in a net tax savings of HK$855,000 compared to what would have been paid had he purchased the property without having transferred ownership of the original property.</p>



<p>Under current laws, the husband may do this repeatedly &#8211; buy a property and then transfer it to his wife – and be entitled to the first-time buyer status and exempt from the AVD on each new purchase. Compared with the 15% AVD, the stamp duty applicable to first-time home buyers is much lower, ranging from 1.5% to 4.25%. If the property price is under HK$2 million, only a printing fee of HK$100 is required. &nbsp;</p>



<h3>A Similar Tax Saving Trick in First-hand Market</h3>



<p>In the first-hand property market, a similar strategy has evolved, with some with prospective buyers “borrowing” their relatives names and registering multiple lottery applications in order to increase their chances of purchasing units. If successful, they can transfer the property ownership from their relative to themselves, typically after waiting three years to avoid being subject to the Special Stamp Duty (SSD), an additional tax payable if you sell or transfer within 3 years of purchase.</p>



<p>These tax-saving strategies are not illegal and sound like no-brainers for anyone seeking to build a portfolio of properties.&nbsp; So why doesn’t everyone (who can afford to buy multiple properties) do this?&nbsp; This approach is obviously beneficial, but one must also pay attention to the risks involved.</p>



<h2>4 Risks of Transferring Property</h2>



<p>Although transferring property titles helps some buyers to reduce taxes, there are other considerations.</p>



<h3>Mortgage Financing</h3>



<p>Banks are naturally careful about awarding a <a href="https://www.planto.hk/en/mortgage-home/">mortgage</a> considering the financial strength of all parties involved, particularly for older purchasers or those with multiple properties in their portfolio.&nbsp; In the above example, the husband may qualify for a mortgage when acquiring a property but may later find that the bank will not transfer the mortgage to his wife if she doesn’t meet various stress tests (ie. debt-to-income, etc.).&nbsp; Or the bank may allow the mortgage transfer but at a higher interest rate.&nbsp; In such cases, the husband could provide a personal guarantee on his wife’s mortgage, though again the bank will review the combined financial strength of the two parties.&nbsp; The same applies to a parent transferring ownership to a child.&nbsp; Just as importantly, a family should not undertake more debt (i.e. risk) than they can comfortably support.</p>



<h3>Costs</h3>



<p>One must consider the costs of the transaction, both the immediate costs (such as attorney’s fees) and costs that may be incurred later.&nbsp; If the mortgage is transferred before the expiry of a penalty period, it may be necessary to return the cash rebate and pay the penalty interest to the bank.</p>



<h3>Estate Planning</h3>



<p>With joint-ownership, if one party passes away, the ownership automatically transfers to the other.&nbsp; Moving to separate ownership results in a more protracted probate process of the sole owner dies, especially if they do not have an updated will, which then leads to an even more exhaustive intestate court process and potentially legal disputes amongst the family.</p>



<h3>Other Tax and Title Considerations</h3>



<p>Some owners may attempt to transfer their property at a below-market price (to reduce stamp duty).&nbsp; However, tax authorities have the right to recover the difference, potentially with a penalty.&nbsp; If the title transfer is done as a Deed of Gift (with no money changing hands between the parties), it is still considered a property transfer and subject to the same tax treatment as a sale.&nbsp; Properties transferred via a Deed of Gift are also subject to claims by creditors if the donor declares bankruptcy within 5 years.&nbsp; This title encumbrance can cause complications later, making the property difficult to sell, since banks may be unwilling to provide a mortgage to a new buyer during that 5-year period.&nbsp;</p>



<p>In summary, property transfers are legal ways to reduce your property taxes. However, there are potential complexities to consider and you should engage professional legal and tax advisors to assist you in making an informed decision before employing this strategy.&nbsp; In addition, the Government has indicated that it is closely monitoring such transfers, so stay abreast of the latest policies in case they change.</p>



<p>Note: Illustrations in this article are for reference only and no representation or warranty is made regarding their accuracy.&nbsp; This article in no way represents legal, tax, accounting or investment advice. Readers considering real estate transactions should consult professionals in these areas for advice.</p>



<p>This article is written by <a href="https://www.okay.com/en/property-news/how-can-transferring-a-property-to-a-relative-save-taxes-in-hong-kong/900?nid=59">OKAY.com</a> and originally published in the author&#8217;s website.&nbsp;</p>



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Hong Kong Homeowners began transferring the title of a property from joint ownership to single ownership. Doing so enables them to restore the “first-time purchaser” status for one party in order to re-enter the property market without paying the additional tax.

HK Homeowners Gain Tax Advantages by Transferring Property Ownership.  Here’s How it Works and the Risks

<p>Housing prices in Hong Kong have been skyrocketing for many years now and show little signs of stopping. Bad for potential buyers but <a href="https://www.planto.hk/en/mortgage-home/">fantastic for homeowners looking to cash out on some of their investments early.</a> Although banks have been cutting their cash rebates, starting with HSBC in June, <a href="https://www.planto.hk/en/mortgage-home/">mortgage refinancing</a> can still be a great idea with the right plan. </p>
<p>Here&#39;s 7 benefits of refinancing:</p>
<h2 id="1-cash-out-for-more-capital">1. Cash-out for more capital</h2>
<p>The housing market has its ups and downs in the short term, but generally, home-buyers from a few years ago have seen a rise in their properties’ market value. Take Taikoo Shing, the definitive middle class housing estate, as an example. According to Midland Holdings’ data, the price has jumped from $14k / sq. ft. in July 2016 to $21k / sq. ft. in July 2019 (a whopping 50% increase in three years)! </p>
<p>With mortgage refinancing, the gain in property value can be realised in cash. As mortgage rates are generally lower than those of personal loans, homeowners can obtain a sizable capital for investments elsewhere with a much lower interest rate. This is actually one of the biggest motivations to remortgage.</p>
<h2 id="2-the-cash-rebate-itself">2. The cash rebate itself</h2>
<p>For some, there may not be a need for investment capital, but some extra cash is always welcome. Some banks offer up to 2% cash rebate on mortgage refinancing. That’s $70k for a $3.5m property, enough for a few monthly instalments, a small-scale renovation, or a lavish European ski trip. </p>
<h2 id="3-a-better-interest-rate">3. A better interest rate</h2>
<p>Competing banks often lead to competitive rates. While the HIBOR and prime rate have been hovering steadily over 2%, mortgage plan from certain banks can offer interest rates as low as 1.68% which can lead to huge savings over time!</p>
<h2 id="4-a-mortgage-linked-account">4. A Mortgage-Linked account</h2>
<p>A mortgage-linked account is another powerful reason to refinance. These are savings account where the interest rate matches the mortgage rate. Essentially any money put in this account will be reducing the amount of interest you pay on the loan, and is way better than your usual savings account or time deposits!</p>
<h2 id="5-to-get-the-mortgage-guarantor-off-the-hook">5. To get the mortgage guarantor off the hook</h2>
<p>Many home-buyers have their family members or relatives as their mortgage guarantors. While this move helps immensely in passing the stress test, it also puts the guarantor’s own credit status in a tough spot. If the homeowner’s income has since improved past what the stress test demands, it may be courteous to take the guarantor’s name off to free up their credit capacity.</p>
<p>This is a simple trick quite widely used by couples and families — the first purchase is made with one of the partners as the owner and the other as the guarantor; a few years down when they go for the second property, their roles switch. This way, they can acquire their two residences without incurring the punishing double stamp duty (DSD).</p>
<h2 id="6-cut-costs-on-mortgage-insurance">6. Cut costs on mortgage insurance</h2>
<p>Insurance is mandatory when taking out a mortgage loan amounting to over 60% of the property value. Take the case of a $4m property owner who has taken out a loan of $2.8m (70% of property value). Say, the owner refinances the mortgage after the property’s worth has risen to $5m. The loan amount would then be under 60% 0f the total property value, giving the homeowner a pass from the mortgage insurance.</p>
<h2 id="7-reduce-monthly-payments">7. Reduce monthly payments</h2>
<p>While a lot of homeowners look to leverage on the property for more loan at a low interest rate, mortgage refinancing is not only for debt creation. A refinancing can result in a longer loan repayment period with the same loan amount, relieving the monthly burden of the owner. Do keep in mind, that a prolonged repayment plan may mean more interest paid over the course of the period.</p>
<p>We&#39;ve built a calculator to help you figure out how much you could save from refinancing or how your monthly payments would be affected, try it out! </p>

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Thinking of refinancing? Property prices in Hong Kong have hit record highs and it's becoming common to refinance your property for cash outs or to get cash rebates. Choosing the right plan can help you save a lot of money. Planto has outlined the 7 biggest benefits。

Property Owners

After purchasing the first property, house owners' next steps could be to mortgage refinance, cash out or invest in more property. Check out how to make the best use of properties to grow your wealth.

Compare mortgages / remortgage deals >

Property Owners

After purchasing the first property, house owners' next steps could be to mortgage refinance, cash out or invest in more property. Check out how to make the best use of properties to grow your wealth.

Compare mortgages / remortgage deals >

HK Homeowners Gain Tax Advantages by Transferring Property Ownership. Here’s How it Works and the Risks

7 Big Benefits of Refinancing

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