Holding assets on behalf of others: An analysis of the pros and cons

There are many strategies for protecting assets, with the four most common methods including escrow, life insurance, trusts and corporate umbrellas.

This article will focus on the method of holding assets on behalf of others and discuss its advantages and disadvantages.

What is proxy holding?

Holding on behalf of others means registering one's assets in the name of another person, but the control rights and income rights of the assets are still controlled by oneself, not the holder. Common assets held on behalf of others include properties, company shares, and even bank deposits.

Although the specific data of proxy holding is difficult to collect, this practice is quite common in reality. Especially after the Hong Kong government implemented the "hot move" on the property market, it is not only difficult for non-first-time homebuyers to apply for a high-percentage mortgage, but they also need to pay a stamp duty of up to 15%, which greatly increases the cost of buying a property. In order to save costs, some people will register the property in the name of a relative who does not own the property, thereby saving stamp duty and obtaining a higher mortgage rate. This is a typical agent holding behavior.

Advantages of proxy holding

1. Simple and low cost

The holding operation is relatively simple and low-cost. You only need to find a trustworthy person and transfer the assets to his name. The ownership, use rights, income and expenditure processing, taxation and other matters of the agreement assets do not necessarily require the involvement of lawyers or other institutions.

2. Save taxes and fees

Agent holding can save taxes and fees, especially in property transactions. You can avoid paying high stamp taxes and have the opportunity to apply for a high-percentage mortgage loan.

Risks of holding on behalf of others

1. Integrity risk

The biggest risk of proxy holding is the issue of integrity. If the holder has the intention of misappropriating the assets, or unfortunately passes away, the assets may be divided among the holders or their relatives. Since in many cases the holding is an oral agreement and may not be documented, it will be difficult to prove that the assets belong to you if legal action is required.

Case

In 2018, an old man surnamed Wu claimed that in order to arrange a long-term mortgage, he bought a house in the name of his two sons as a "retirement home." However, after the property appreciated in value, the two sons sold the property privately and divided the profits. They also changed the door locks to prevent the old man from entering the house. The old man filed a lawsuit in court to regain his property rights, but he ultimately lost the case because there was insufficient evidence to prove his claims.

2. Legal risks

Holding on behalf of others also carries the risk of breaking the law. Article 11 of the Stamp Duty Ordinance clearly stipulates that documents for the purchase and sale of properties must clearly state the facts and circumstances that affect stamp duty, including property holdings. Failure to disclose this will lead to the risk of breaking the law.

When applying for a mortgage, the document you sign may contain a clause stating that the property is held by you and not on behalf of someone else, and breaching such a declaration may constitute a misrepresentation offence. In addition, the entrusted holding of shares of listed companies exceeding 10% must also be disclosed, otherwise it will violate the equity disclosure requirements of Part 15 of the Securities and Futures Ordinance.

Conclusion

Although holding assets on behalf of others can save taxes and obtain high-percentage mortgages in some cases, its risks cannot be ignored. Integrity risks, legal risks and possible violations of law all require careful consideration. In comparison, there are other safer and legal methods of asset protection, such as trusts, life insurance, and corporate umbrellas. The specific applications and advantages and disadvantages of these methods will continue to be explored in the future.

Disclaimer: The content of this article is for reference only and does not constitute investment advice or an invitation, solicitation or recommendation for any investment product. Readers are advised to make their own judgment and seek professional advice.

The content of this article is purely the author's personal opinion and does not represent the position of 852FIN.

852FIN reminds readers that the content contained in this article mainly comes from online public information and does not constitute any professional advice. Readers should seek professional advice with specific questions regarding asset management and protection.

852FIN and the author of this article are not responsible for any loss or damage caused by the information contained or omitted in the article.