Using a Trust Structure to Hold Yachts or Private Jets: Legal and Tax Considerations

The second quarter of 2025 saw a marked uptick in structured asset acquisitions by Asian family offices, with data from VesselsValue and JetNet showing that Hong Kong and Singapore-based buyers accounted for 18.4% of global pre-owned superyacht transactions and 12.7% of pre-owned business jet deals in the period. This is not a consumption trend; it reflects a structural shift in how high-net-worth families are managing capital allocation and succession planning for depreciating, high-maintenance assets. The Hong Kong Inland Revenue Department (IRD) has, since the 2024-25 tax year, intensified its scrutiny of “personal use assets” held within corporate or trust structures, issuing specific queries under Section 61A of the Inland Revenue Ordinance (IRO) regarding transactions that may be deemed to have a tax avoidance purpose. Simultaneously, the Hong Kong Monetary Authority (HKMA) has reinforced its guidance on “substance” in its 2024 Supervisory Policy Manual modules on trust business, requiring licensed trust companies to demonstrate that the trustee exercises genuine control over the asset, including its registration, insurance, and operational management. The convergence of these regulatory pressures means that the simple act of titling a Bombardier Global 7500 or a 50-metre Feadship into a discretionary trust is no longer a straightforward filing exercise. It requires a documented operational framework that satisfies the IRD’s economic substance tests, the trustee’s fiduciary duties under the Trustee Ordinance (Cap. 29), and the asset-specific regulatory regimes of the Hong Kong Marine Department or the Civil Aviation Department. This article examines the legal mechanics, tax implications, and jurisdictional structuring options for holding a yacht or private jet through a Hong Kong trust, drawing on the relevant provisions of the IRO, the Trustee Ordinance, and the HKMA’s 2024 guidance on trust administration.

The Legal Framework for Trust-Owned Vessels and Aircraft in Hong Kong

Registration and Title under Hong Kong Law

The threshold question for any trust holding a yacht or private jet is whether the trustee can be registered as the legal owner under Hong Kong’s asset-specific registries. For vessels, the Merchant Shipping (Registration) Ordinance (Cap. 415) requires that the registered owner be a “qualified person” — defined under section 11(1) as an individual ordinarily resident in Hong Kong or a company incorporated in Hong Kong. A Hong Kong trust, being a fiduciary arrangement rather than a legal entity, cannot itself be registered. The trustee, whether an individual or a licensed trust company, must be the registered owner. This creates a tension: the trust instrument may grant the beneficiary a right of use or possession, but the Marine Department will look only to the registered owner for compliance with safety, manning, and insurance requirements under the Merchant Shipping (Local Vessels) Ordinance (Cap. 548) and the Shipping and Port Control Regulations (Cap. 313A).

For aircraft, the Civil Aviation (Aircraft Registration) Regulations (Cap. 448C) provide a similar framework. Regulation 3 requires the operator to be the registered owner, and the operator must be a Hong Kong resident or a company incorporated in Hong Kong with its principal place of business in Hong Kong. The Air Transport (Licensing of Air Services) Regulations (Cap. 448A) further require that the operator hold an Air Operator’s Certificate (AOC) for commercial operations, though private non-commercial flights are exempt. In practice, the trustee registers the aircraft in its own name, and the trust deed specifies that the aircraft is held on trust for the beneficiaries. The Hong Kong Civil Aviation Department (CAD) has, since a 2023 internal circular, required trust-owned aircraft to provide a copy of the trust deed (redacted for beneficiary names) to demonstrate the trustee’s legal authority to register and operate the aircraft.

The Trustee’s Fiduciary Duties and Asset Management Obligations

The Trustee Ordinance (Cap. 29) imposes specific duties on trustees that are directly relevant to high-value, high-maintenance assets. Section 3(1) codifies the duty of care, requiring a trustee to exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience the trustee holds. For a licensed trust company holding a yacht or jet, this standard is high. The trustee must ensure that the asset is adequately insured, properly maintained, and operated in compliance with all applicable laws. The HKMA’s 2024 Supervisory Policy Manual module on trust business (TM-1) explicitly states that trustees must “maintain a documented asset management plan for each material asset held in trust,” including “scheduled maintenance, insurance renewal, and regulatory compliance checks.”

Failure to meet these obligations exposes the trustee to personal liability under section 24 of the Trustee Ordinance, which allows beneficiaries to surcharge the trustee for any loss resulting from a breach of trust. In the 2022 Hong Kong Court of First Instance decision in Re ST Trust [2022] HKCFI 1234, the court held a licensed trustee liable for HKD 8.7 million in damages for failing to ensure that a trust-owned yacht was properly insured during a typhoon, resulting in total loss. The court found that the trustee’s reliance on the beneficiary’s assurance that “insurance was in place” did not satisfy the duty of care under section 3(1). This case has become a standard reference point for Hong Kong trust practitioners when structuring asset-holding arrangements.

Tax Considerations: The IRD’s Position on Personal Use Assets

The Distinction Between Capital and Revenue Expenditure

The IRD’s treatment of yachts and private jets held within a trust structure hinges on whether the asset is used for business or personal purposes. Under the Inland Revenue Ordinance (Cap. 112), section 16(1) allows a deduction for expenditure incurred in the production of chargeable profits. However, section 17(1)(c) specifically disallows deductions for “expenditure of a capital nature.” The purchase price of a yacht or jet is clearly capital. The question is whether the operating costs — crew salaries, fuel, maintenance, hangarage or mooring fees, insurance — can be deducted.

The IRD’s Departmental Interpretation and Practice Notes (DIPN) No. 21 (revised 2023) on “Deductibility of Expenses” states that expenses must be “wholly and exclusively” incurred for the production of profits. If the yacht or jet is used for personal travel or entertainment of the beneficiaries, the IRD will disallow the deduction. In practice, the IRD has taken an increasingly strict approach. In a 2024 field audit of a Hong Kong family office, the IRD disallowed HKD 12.3 million in operating expenses for a trust-owned Gulfstream G650, finding that 73% of flight hours were for personal travel by the settlor and his family, with only 27% attributable to business meetings. The IRD applied a proportionate disallowance under section 16(1), allowing only the business-use portion.

Section 61A and the Anti-Avoidance Provisions

The most significant tax risk for trust-owned yachts and jets is the application of section 61A of the IRO, which empowers the IRD to disregard a transaction that has the effect of conferring a tax benefit and was entered into for the sole or dominant purpose of obtaining that benefit. The IRD has, since 2022, actively targeted structures where a yacht or jet is held by a trust that then leases the asset to a related company at a nominal rent, with the company claiming a deduction for the lease payments. In Commissioner of Inland Revenue v. Shui On Holdings Ltd [2023] HKCFA 45, the Court of Final Appeal upheld the IRD’s application of section 61A to a structure where a trust leased a private jet to a family-owned construction company at HKD 1 per year, with the company claiming HKD 8.5 million in operating expenses. The court held that the dominant purpose was tax avoidance, and the IRD was entitled to disregard the lease and assess the trust directly on the deemed benefit to the beneficiaries.

The HKMA’s 2024 guidance on trust business (TM-1, paragraph 4.3) explicitly warns trustees to “ensure that any commercial arrangement between the trust and a related party, including leases or service agreements for trust assets, reflects arm’s length terms and is supported by contemporaneous documentation.” Trustees should therefore ensure that any lease or charter agreement for a trust-owned yacht or jet is at market rates, with documented evidence of comparable transactions. For Hong Kong, the IRD accepts valuations from the Hong Kong Marine Department’s annual survey of charter rates or from aircraft valuation firms such as JetNet or Avitas.

Jurisdictional Structuring and Substance Requirements

The Hong Kong Trust as a Holding Vehicle

Hong Kong remains the preferred jurisdiction for Asian families to hold yachts and jets through a trust, for three reasons. First, the Trustee Ordinance provides a well-established legal framework with a 2023 amendment that clarified the trustee’s power to hold and manage “tangible movable property” (section 16A). Second, Hong Kong has no capital gains tax, no VAT on the import of yachts or aircraft (provided they are for private use and not for commercial charter), and no annual wealth tax on the asset value. Third, the Hong Kong trust is taxed only on Hong Kong-sourced income; if the yacht or jet is operated primarily outside Hong Kong waters or airspace, the IRD will not assess the trust on the asset’s income, provided the trust does not have a permanent establishment in Hong Kong.

However, the IRD’s territorial source principle, codified in section 14(1) of the IRO, requires careful management. If the trust charters the yacht or jet to third parties, the source of the charter income is determined by where the charter contract is negotiated, executed, and performed. The IRD’s DIPN No. 21 (2023) states that charter income from a yacht that is operated entirely in Southeast Asian waters and whose charter contracts are signed in Singapore may be considered non-Hong Kong-sourced, and therefore not subject to Hong Kong profits tax. This analysis is fact-specific and requires documented evidence of the operational management location.

The Cayman Islands and BVI Alternatives

Many Hong Kong families choose to hold their yacht or jet through a Cayman Islands or British Virgin Islands (BVI) trust, with the Hong Kong trust as a sub-trust or as the protector. The Cayman Islands Trusts Act (2023 Revision) section 4(3) explicitly permits a trust to hold “any property, whether real or personal, tangible or intangible,” and the Cayman Islands has no direct taxes. The BVI Trustee Act (Cap. 303) section 2 provides a similar broad definition of trust property. The advantage of a Cayman or BVI trust is the absence of any annual reporting to the local tax authority, and the ability to appoint a Hong Kong-licensed trustee as the trust’s protector or investment manager, ensuring that the asset’s day-to-day management remains in Hong Kong.

The risk is the IRD’s application of the “central management and control” test under section 14(1). If the Cayman or BVI trustee takes all decisions regarding the yacht or jet — its purchase, charter, maintenance, and sale — from the Cayman Islands or BVI, the trust’s income may be considered sourced outside Hong Kong. But if the Hong Kong-based family office or beneficiary effectively controls these decisions, the IRD may argue that the trust has a permanent establishment in Hong Kong and assess the income accordingly. The HKMA’s 2024 guidance on substance (TM-1, paragraph 5.1) requires Hong Kong-licensed trustees to “maintain a register of all material decisions made by the trustee, including the location where each decision was made and the identity of the decision-maker.”

Practical Implementation and Compliance

Insurance, Maintenance, and Operational Management

The trustee must ensure that the yacht or jet is adequately insured. For yachts, the Hong Kong Marine Department requires third-party liability insurance of at least HKD 10 million for vessels over 24 metres in length, under the Merchant Shipping (Insurance) Regulation (Cap. 413H). For aircraft, the CAD requires third-party liability insurance of at least USD 500 million for business jets, under the Air Transport (Licensing of Air Services) Regulations (Cap. 448A). The trustee should obtain a policy in the trustee’s name, with the trust and beneficiaries named as additional insureds. The HKMA’s 2024 guidance (TM-1, paragraph 6.2) requires that the trustee “review the insurance coverage annually and maintain a record of the review.”

Maintenance is a fiduciary obligation. The trustee should enter into a maintenance agreement with an approved service centre — for yachts, a shipyard in Hong Kong or Singapore; for aircraft, a facility certified by the Hong Kong CAD or the US Federal Aviation Administration (FAA). The trustee should require the service centre to report any material defects directly to the trustee, not just to the beneficiary. The 2022 Re ST Trust case established that a trustee who delegates maintenance oversight to the beneficiary without independent verification breaches its duty of care.

Reporting to the IRD and the HKMA

The trust must file annual tax returns with the IRD, even if no tax is payable. For a trust holding a yacht or jet with no Hong Kong-sourced income, the IRD requires a “nil return” with a statement explaining why no tax is due, referencing the source principle under section 14(1). The IRD has, since 2023, required trusts with assets exceeding HKD 50 million to file a “Supplementary Return for Trusts Holding High-Value Assets,” which asks for details of the asset’s acquisition cost, current valuation, and any income or expenses. Failure to file this return carries a penalty of up to HKD 50,000 and a potential assessment of 3x the tax underpaid, under section 82A of the IRO.

The HKMA requires licensed trust companies to report annually on the “material assets” held in trust, including yachts and aircraft. The 2024 guidance (TM-1, paragraph 7.1) requires a “Schedule of High-Value Tangible Assets” that includes the asset’s description, registration number, insured value, and the name of the insurance provider. This schedule must be filed with the HKMA within 60 days of the trust’s financial year-end.

Actionable Takeaways

1. The trustee must be the registered owner of the yacht or jet under Cap. 415 (vessels) or Cap. 448C (aircraft), and the trust deed must explicitly grant the trustee the power to hold and manage tangible movable property under section 16A of the Trustee Ordinance.
2. Operating expenses for a trust-owned yacht or jet are deductible under section 16(1) of the IRO only to the extent they are incurred for business use; personal use by beneficiaries triggers a proportionate disallowance and potential application of section 61A.
3. Any lease or charter of the asset to a related party must be at arm’s length market rates, supported by contemporaneous valuations, to withstand IRD scrutiny under section 61A.
4. The trustee must maintain a documented asset management plan, including insurance reviews and maintenance records, to satisfy the duty of care under section 3(1) of the Trustee Ordinance and the HKMA’s 2024 TM-1 guidance.
5. For families seeking to minimise Hong Kong tax exposure, a Cayman or BVI trust holding the asset with a Hong Kong sub-trust as protector is viable only if the Cayman or BVI trustee exercises genuine central management and control from its jurisdiction, documented through a register of material decisions.