What happens when a property owner defaults on their mortgage, and the bank needs to take control? In Hong Kong’s dynamic property market, receivership situations create unique stamp duty challenges. With the sweeping reforms of February 2024 that eliminated punitive duties, understanding the current rules for distressed assets has never been more crucial—or potentially rewarding for savvy investors.

Understanding Receivership in Hong Kong’s Property Market

Receivership occurs when a borrower defaults on a secured loan, typically a mortgage, and a receiver—often a qualified accountant or lawyer—is appointed to take control of the property. This professional acts in the best interests of the secured creditor (usually a financial institution) while balancing legal obligations to the debtor and other stakeholders. In Hong Kong’s property landscape, distressed transactions have become increasingly common, making it essential to understand their unique tax implications.

Types of Distressed Property Transactions

• Mortgagee sales: Properties sold by the lender following borrower default
• Receiver sales: Properties sold by a court-appointed or privately-appointed receiver
• Court-ordered sales: Properties transferred pursuant to court judgments or foreclosure orders
• Forced liquidations: Properties sold as part of bankruptcy or corporate insolvency proceedings

Hong Kong’s Simplified Stamp Duty Framework (2024-2025)

The February 2024 Revolution

Hong Kong’s property stamp duty landscape underwent a seismic shift on February 28, 2024. The government eliminated all demand-side management measures that had been in place for over a decade, fundamentally changing the economics of property transactions—including distressed assets.

• Buyer’s Stamp Duty (BSD): Previously 15% for non-HK permanent residents and corporate buyers
• Special Stamp Duty (SSD): Previously 10-20% based on holding period (6 months to 3 years)
• New Residential Stamp Duty (NRSD): Previously applied to certain residential purchases

Current Ad Valorem Stamp Duty (AVD) Rates

With the elimination of BSD and SSD, only Ad Valorem Stamp Duty (AVD) now applies to property transactions. The rates are unified for all buyers, regardless of residency status or entity type.

Special Stamp Duty Rules for Receivership Transactions

Exemptions for Institutional Transfers

Despite the simplified regime, specific exemption provisions remain crucial for receivership transactions. According to IRD guidelines, certain transfers may qualify for AVD exemptions:

1. Transfer to Financial Institution Mortgagee or Receiver

A conveyance may be exempt from AVD if the property is transferred to or vested in:

• Its mortgagee that is a financial institution within the meaning of section 2 of the Inland Revenue Ordinance (Cap. 112), OR
• A receiver appointed by such a mortgagee

The term “financial institution” typically includes:

• Licensed banks under the Banking Ordinance
• Restricted licence banks
• Deposit-taking companies
• Authorized insurers
• Registered credit unions

2. Court-Ordered Transfers

Exemptions are also available when property is transferred pursuant to a decree or order of any court of competent jurisdiction in Hong Kong, including:

• Foreclosure orders obtained by a mortgagee
• Court orders directing the sale or transfer of property in legal proceedings
• Bankruptcy or liquidation court orders

How to Apply for Stamp Duty Exemptions

Required Documentation

To claim an exemption for a receivership transaction, parties must submit an application to the Inland Revenue Department using Form IRSD118 (“Application for Exemption of Stamp Duty”). The application requires comprehensive supporting documentation:

1. Original loan agreement and mortgage documents establishing the security interest
2. Deed of appointment of the receiver (if applicable)
3. Court order (if the transfer is pursuant to court proceedings)
4. Evidence of default and circumstances leading to receivership
5. Certificate of incorporation or business registration proving the mortgagee is a financial institution
6. Conveyance or agreement for sale that is the subject of the exemption application
7. Statutory declaration or affidavit verifying the facts stated in the application

Processing Timeline and Practical Tips

• Submission deadline: Applications should be submitted before or at the time of stamping
• Processing time: Typically 2-4 weeks, depending on complexity and completeness
• Provisional stamping: Parties may need to pay stamp duty provisionally pending approval, with refund available if exemption is granted
• IRD discretion: The Collector of Stamp Revenue has discretion to grant or refuse exemptions based on the facts presented

Real-World Scenarios: Stamp Duty in Action

Scenario 1: Bank Forecloses and Takes Title

Facts: ABC Bank holds a mortgage over a residential property. The borrower defaults, and after following proper procedures, ABC Bank (a licensed bank) obtains a court foreclosure order transferring title to the bank.

Stamp Duty Treatment: The transfer to ABC Bank may qualify for AVD exemption. The bank must apply using Form IRSD118, submitting the court order and evidence of its status as a financial institution. If approved, no stamp duty is payable.

Scenario 2: Receiver Sells to Third Party

Facts: XYZ Finance Company appoints a receiver over a defaulted property. The receiver sells the property to Mr. Chan (a Hong Kong permanent resident) for HK$8,000,000.

Stamp Duty Treatment: Standard AVD applies: HK$8,000,000 × 3% = HK$240,000. No BSD or SSD applies (abolished as of February 2024). Both receiver and Mr. Chan are jointly liable for payment within 30 days.

Scenario 3: Mortgagee Sale to Corporate Buyer

Facts: A financial institution exercises its power of sale as mortgagee and sells a property to Property Investment Ltd., a Hong Kong company, for HK$25,000,000.

Stamp Duty Treatment: Standard AVD applies: HK$25,000,000 × 4.25% = HK$1,062,500. The corporate buyer benefits significantly from BSD elimination (would have been an additional HK$3,750,000 pre-2024).

Critical Compliance Considerations

Late Payment Penalties

Failure to stamp documents within prescribed time limits results in severe penalties:

• Within 1 month of deadline: Penalty of 2 times the stamp duty payable
• Between 1-2 months: Penalty of 4 times the stamp duty payable
• Beyond 2 months: Penalty of up to 10 times the stamp duty payable, plus potential prosecution

Valuation Scrutiny

The IRD has authority to assess stamp duty based on market value if it believes the stated consideration is below market. Receivers should:

• Obtain independent valuations to support sale prices
• Document the marketing process and any genuine reasons for below-market sales
• Be prepared to provide detailed explanations if IRD questions valuations

Impact of the 2024 Reforms on Distressed Property Market

The elimination of BSD and SSD has fundamentally transformed Hong Kong’s distressed property market:

• Increased liquidity: Removal of punitive duties makes distressed properties more attractive to a wider range of buyers
• Foreign investor interest: Elimination of 15% BSD has reopened the market to international buyers of distressed assets
• Corporate acquisitions: Companies can now acquire distressed residential properties without BSD penalty
• Simplified compliance: Fewer exemption applications needed, reducing administrative burden

Hong Kong’s simplified stamp duty regime has created new opportunities in the distressed property market. With punitive duties eliminated and clear exemption pathways for institutional transfers, both financial institutions and investors can navigate receivership transactions with greater certainty. However, the importance of proper documentation, timely compliance, and professional guidance cannot be overstated—especially when dealing with the complexities of distressed assets.