HONG KONG SAR, CHINA Law and Practice Contributed by: Alfred Ip, Hugill & Ip
The “Great Wealth Transfer” ‒ the unprecedented inter - generational transfer of wealth currently underway in Hong Kong and across Asia ‒ places succession plan - ning at the forefront of the private wealth agenda. As the first generation of post-war wealth creators pass - es away, their children and grandchildren are inheriting businesses and assets of enormous complexity and value. The challenges of this transition are explored in depth in Succession Battles, Family Trusts and Inher - ited Wealth. 4.3 Transfer of Partial Interest As Hong Kong does not levy gift, estate, or inheritance taxes, the valuation of a partial interest in an entity for transfer tax purposes is generally not a primary planning consideration in the domestic context. The principal tax cost on the transfer of shares in a Hong Kong private company is stamp duty, which is levied at 0.2% of the higher of the consideration paid or the fair market value of the shares as determined by the net asset value of the company. For stamp duty purposes, the IRD will assess the fair market value of the shares by reference to the under - lying net asset value of the company. Whilst minority discounts and discounts for lack of marketability are well-established concepts in commercial valuation practice, the IRD’s primary focus is the underlying net asset value, and significant valuation discounts are subject to scrutiny. Practitioners should obtain independent professional valuations to support any discount applied, and should be prepared to engage with the IRD on the methodology. For the transfer of interests in offshore entities, such as BVI or Cayman Islands companies, Hong Kong stamp duty is not applicable, as the shares are not “Hong Kong stock” within the meaning of the Stamp Duty Ordinance. This is one of the many reasons why offshore holding structures remain popular for family business planning in Hong Kong.
demographic, social, and economic factors. The most significant driver is the aforementioned Great Wealth Transfer (see 4.2 Succession Planning ). Disputes often involve challenges to the validity of wills, claims for financial provision under Cap. 481, and conflicts between trustees and beneficiaries over the adminis - tration of trust assets. Challenges to testamentary capacity are among the most common forms of probate dispute in Hong Kong. As the population ages and mental incapacity becomes more prevalent, the question of whether a testator had the requisite mental capacity to execute a valid will and thereby satisfy the four-limb test in Banks v Goodfellow is increasingly litigated. These cases are factually intensive and require medical evidence, wit - ness testimony, and a careful reconstruction of the testator’s mental state at the time of execution. For a comprehensive analysis, see Essential Considerations on Testamentary Challenges and Safeguards on Will- Writing in Complex Family Situations. Undue influence claims are closely related and equally contentious. For probate purposes, a claimant alleg - ing undue influence must present evidence of coer - cion, namely that the testator’s will was overborne by the improper pressure of another person. This a high threshold to satisfy as the courts are typically reluc - tant to rule against an otherwise validly executed will. However, suspicious circumstances, such as a sud - den change in testamentary disposition in favour of a carer or a new partner, combined with evidence of the testator’s vulnerability, can shift the evidential burden in the claimant’s favour. In the context of trusts, disputes between trustees and beneficiaries are increasingly driven by demands for transparency and accountability. Beneficiaries are increasingly seeking disclosure of trust documents, including the letter of wishes, trustee minutes, and investment reports, and challenging the trustee’s exer - cise of discretion as irrational or made in bad faith. The tension between the trustee’s duty of confidentiality and the beneficiary’s right to information is a recurring theme in Hong Kong trust litigation.
5. Wealth Disputes 5.1 Trends Driving Disputes
Wealth disputes in Hong Kong are increasing in both volume and complexity, driven by a confluence of
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