Inheritance tax sends wealthy mainlanders to Hong Kong property
A round of capital flight is taking place in China, with many of the country’s wealthy rushing to send their assets abroad to dodge an imminent introduction of inheritance tax.
A significant example is the recent purchase of a luxury house in Hong Kong by Alibaba founder Jack Ma for HK$1.5 billion (US$193.5 million), his second property in the city, after another luxury house he bought for HK$282 million (US$36.4 million) in 2007.
Cheung Chung Kiu, chair of C C Land Holdings, spent HK$6.3 billion (US$812.6 million) in January, as well as an additional HK$5.l billion (US$657.8 million) in tax, to buy the Hiu Kok Yuen, a luxury house with an 100-year history in Hong Kong, setting a record for a purchase of a luxury property in the city.
Many rich mainlanders have chosen to park their fortunes in the Hong Kong realty market for a number of reasons, including the quality of life including advanced medical facilities, the special administrative region’s status as an international financial center and the low tax rate, at 16.5% income tax, without capital gains tax or inheritance tax, according to Real Estate Circle, a Weibo account affiliated with Shanghai’s National Business Daily.
The inheritance tax will be levied nationwide following a trial levy in Shenzhen based on a provisional statute promulgated in September 2004. Under the statute, inheritors have to pay inheritance tax at progressive rates capped at 50% on inheritance, 20% of which will be exempt from the tax. Inheritors have to pay the tax in cash within three months or face confiscation of the inheritance.
The inheritance tax may prompt people to transfer their fortunes to other tax havens or even emigrate to places like the US, where inheritance is subject to a maximum 35% tax rate beyond a US$5 million exemption, according to Real Estate Circle.
The Weibo account offers other channels for legal evasion of inheritance tax, including taking out life insurance policies, as compensation is tax free, or the setup of family trusts for those with a high net worth.