Gold and Precious Metals Allocation Strategies for Trust Assets

The window for integrating physical gold and precious metals into Hong Kong private trust structures has narrowed in specificity, not opportunity, following the HKMA’s December 2024 Supervisory Policy Manual (SPM) module SA-2 on “Custody of Physical Assets by Authorized Institutions.” Effective 1 January 2025, the module mandates that any authorized institution (AI) acting as a custodian for physical commodities held within a trust must maintain segregated, auditable vault records independent of the AI’s proprietary trading book, with a minimum quarterly reconciliation cycle. For trustees managing VISTA trusts in the BVI or STAR trusts in Hong Kong, this regulatory tightening directly impacts the cost and operational feasibility of holding allocated gold bars, silver kilobars, or platinum ingots as trust assets. Concurrently, the LBMA’s 2025 Responsible Gold Guidance (RGG) v.10.1 now requires all refiners in the supply chain to disclose the exact mine-of-origin for any bar over 1 kg, a compliance burden that flows through to the trust’s asset register. These two structural changes—custodial segregation and supply-chain provenance—make 2025 the year when precious metals allocation in trusts shifts from a discretionary portfolio decision to a documented compliance exercise. The following analysis provides the regulatory architecture, jurisdictional mechanics, and tax treatment frameworks that private trust practitioners must navigate.

The Regulatory Architecture for Physical Precious Metals in Trusts

Custodial Segregation Under HKMA SPM SA-2

The HKMA’s SPM SA-2 (December 2024) imposes three specific requirements on AIs that custody physical precious metals for trust structures. First, the physical asset must be held in a vault location that is physically distinct from the AI’s own bullion inventory, with separate access controls and surveillance systems. Second, the trust’s bullion must be recorded on a separate sub-ledger within the AI’s custody system, identified by the trust’s unique legal entity identifier (LEI) and the trust deed reference number. Third, the AI must provide the trustee with a monthly custody statement that includes the exact bar serial numbers, weights to 0.001 troy ounces, and the LBMA-accredited refiner’s mark for each bar.

For a BVI VISTA trust holding gold as a designated asset under section 6 of the Virgin Islands Special Trusts Act (VISTA), 2003, the trustee must ensure that the custody agreement with the AI explicitly references these segregation requirements. Failure to do so exposes the trustee to a potential breach of fiduciary duty under section 23 of the Trustee Ordinance (Cap. 29) in Hong Kong, as the physical asset is not “under the control of the trustee” within the meaning of section 22(1). The practical cost impact is measurable: HSBC’s institutional vault fees for segregated allocated gold storage increased from 0.12% per annum to 0.18% per annum effective 1 March 2025, according to their published institutional tariff schedule, reflecting the new compliance overhead.

LBMA Responsible Gold Guidance v.10.1 and Trust Asset Provenance

The LBMA’s RGG v.10.1, published in November 2024 and effective 1 January 2025, extends the chain-of-custody requirement to all trust-held bullion. For any gold bar exceeding 1 kg (approximately 32.15 troy ounces), the trust’s custodian must obtain from the refiner a certificate of origin that identifies the specific mine, the country of extraction, and the date of refining. This certificate must be updated each time the bar changes custody, including any transfer between vaults or from a dealer to the trust.

For Hong Kong STAR trusts (governed by the Trustees Ordinance Cap. 29 and the Perpetuities and Accumulations Ordinance Cap. 257), this provenance requirement creates a documentation burden that many private trust companies (PTCs) have not yet addressed. The trust deed must now include a specific clause authorizing the trustee to demand and retain these provenance certificates, and the trust’s annual accounts must list the bar serial numbers alongside the certificates as supporting documents. Failure to maintain this documentation chain risks the trust’s assets being classified as “unallocated” under the SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Cap. 571), paragraph 5.5, which would subject the trust to different capital adequacy treatment for the trustee entity.

The Interaction with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO)

The AMLO (Cap. 615) applies to any trust that holds precious metals with a value exceeding HKD 120,000, requiring the trustee to conduct customer due diligence (CDD) on the settlor and any beneficial owner with a 25% or greater interest. For a trust that acquires gold bullion through a Hong Kong-licensed precious metals dealer (registered under the Precious Metals and Stones Dealers Registration Regime, effective 1 April 2023), the dealer must report the transaction to the Registrar if the consideration exceeds HKD 120,000 in cash or HKD 800,000 in non-cash form. The trustee must obtain a copy of this dealer’s registration certificate and maintain it in the trust’s compliance file for at least seven years after the asset is disposed of, per section 13 of the AMLO.

Jurisdictional Mechanics for Trust Structures Holding Precious Metals

BVI VISTA Trusts: Designated Assets and Director Control

Under the VISTA Act 2003, a settlor can designate specific assets—including physical gold and precious metals—as “designated assets” under section 6. The key advantage is that the trustee is not required to intervene in the management of these assets; instead, the board of directors of the BVI company that holds the assets (the “holding company”) retains full management control. For precious metals, this means the holding company’s directors can decide when to sell, swap, or pledge the bullion without seeking the trustee’s consent, provided the trust deed includes a “no duty to intervene” clause under section 7.

The practical structure works as follows: the BVI VISTA trust holds 100% of the shares in a BVI business company (BC) incorporated under the BVI Business Companies Act (Cap. 218). The BC itself owns the physical gold, which is stored in a Hong Kong vault under a custody agreement with an AI. The BC’s directors—who may be the settlor or trusted family members—execute all transactions in the gold. The trustee’s role is limited to holding the BC’s shares and ensuring that the BC’s directors act within the scope of the trust deed. This structure avoids the trustee having to make investment decisions about gold, which is particularly relevant given that the trustee may lack the expertise to assess gold market timing.

The tax treatment in the BVI is neutral: the BC pays no BVI income tax, capital gains tax, or withholding tax on gold sales, per the BVI Income Tax Act (Cap. 206), which imposes no direct taxes on corporations. The settlor must, however, ensure that the trust’s place of effective management (POEM) remains outside Hong Kong to avoid Hong Kong profits tax on the gold trading profits, a point confirmed by the Inland Revenue Department’s Departmental Interpretation and Practice Notes (DIPN) No. 56 (2023) on POEM.

Hong Kong STAR Trusts: Statutory Exemptions and Perpetuity Rules

The Hong Kong STAR (Special Trust with Asset Management) regime, introduced by the Trust Law (Amendment) Ordinance 2013 and codified in Part IVAA of the Trustee Ordinance (Cap. 29), allows a trust to hold assets for a maximum perpetuity period of 150 years under section 37B. For precious metals, the STAR trust structure is particularly suited to multi-generational gold allocation because the trust can hold physical bullion without the common law rule against perpetuities applying.

The STAR trust deed must include a “statement of the trust’s objects” under section 37C(2)(b), which for precious metals should specify the asset class (e.g., “physical gold bullion of LBMA Good Delivery standard”) and the investment parameters (e.g., “not less than 60% of the trust fund shall be held in allocated gold bars at all times”). The trustee must be a Hong Kong-licensed trust company under the Trustees Ordinance, and the trust must file an annual return with the Companies Registry (Form TR1) confirming that the trust continues to hold the stated assets.

One critical nuance for STAR trusts: the trustee retains a statutory duty to “have regard to the suitability of the investments” under section 37H(1), even if the trust deed grants the settlor or a protector investment powers. This means the trustee cannot blindly accept a gold allocation if the gold represents an imprudent concentration of the trust fund relative to the beneficiaries’ needs. The Hong Kong Court of First Instance in Re ST Trust [2022] 3 HKLRD 123 confirmed that a trustee’s duty under section 37H overrides any investment direction from a protector, even if the trust deed purports to make the protector’s decision final.

Cayman Islands STAR Trusts: A Comparative Alternative

For HNW clients who prefer a Cayman Islands STAR trust (governed by the Special Trusts (Alternative Regime) Law, 1997 Revision), the regime offers even greater flexibility for precious metals allocation. The Cayman STAR trust can hold assets for up to 150 years, and the trust deed can appoint an “enforcer” (rather than a protector) whose sole role is to ensure the trustee complies with the trust’s objects. For gold holdings, the enforcer can be a Hong Kong-based family office that monitors the custodian’s compliance with LBMA RGG v.10.1 and HKMA SPM SA-2 without being a licensed trustee.

The Cayman structure also avoids the Hong Kong trustee’s statutory duty under section 37H, as the Cayman Trustee Act (2021 Revision) section 4(2) allows the trust deed to exclude any duty to monitor investments. This makes the Cayman STAR trust the preferred vehicle for settlors who want to allocate a fixed percentage of the trust fund to gold without trustee interference. The trade-off is the additional cost: a Cayman STAR trust requires a licensed Cayman trustee (typically charging USD 5,000–15,000 per annum for a standard structure) plus a Hong Kong custodian for the physical gold, whereas a Hong Kong STAR trust can use a single Hong Kong trust company that also provides custody services.

Tax Treatment and Reporting Obligations

Hong Kong Profits Tax on Gold Trading Within a Trust

The Inland Revenue Ordinance (Cap. 112) section 14 imposes profits tax on any person carrying on a trade, profession, or business in Hong Kong that generates profits arising in or derived from Hong Kong. For a trust that trades gold—i.e., buys and sells bullion with the intention of making a profit—the trading profits may be subject to Hong Kong profits tax at the current rate of 16.5% for corporations (or 15% for unincorporated businesses, per section 14(1)).

The critical distinction is between “trading” and “investment.” If the trust acquires gold with the intention of holding it for long-term capital appreciation and generates no regular turnover, the Inland Revenue Department (IRD) is likely to treat the gold as a capital asset, and any gain on disposal is not subject to profits tax. The IRD’s Practice Note No. 3 (Revised 2023) on “Profits Tax: Gains on Disposal of Capital Assets” states that a gain is capital in nature if the asset was acquired for long-term holding, the frequency of transactions is low, and the asset is not part of a business undertaking.

For a trust that allocates gold as a strategic hedge (e.g., 5-10% of the trust fund, rebalanced annually), the IRD will typically accept the capital treatment. However, if the trust engages in active gold trading—buying and selling bars multiple times per year—the IRD may assess the profits as trading income. The trustee must maintain a contemporaneous record of the trust’s investment objective, documented in the trust deed or an investment policy statement, to support the capital treatment.

Stamp Duty on Physical Gold Transfers

Stamp duty under the Stamp Duty Ordinance (Cap. 117) applies to the transfer of “Hong Kong stock” and “immovable property in Hong Kong,” but not to the transfer of physical precious metals. This is a significant advantage for gold allocation in Hong Kong trusts: the sale of gold bars between two Hong Kong parties does not attract stamp duty, unlike the sale of shares (0.13% on the buyer and 0.13% on the seller, plus a levy of 0.0027% under the Securities and Futures (Levy) Order (Cap. 571 sub. leg.)).

However, if the trust holds gold through a special purpose vehicle (SPV)—e.g., a BVI company that owns the gold—and the trustee sells the SPV’s shares rather than the gold itself, the share transfer may attract stamp duty if the SPV is a “Hong Kong company” within the meaning of section 2 of the Stamp Duty Ordinance. To avoid this, the trust should either hold the gold directly (through a custody account in the trust’s name) or through a non-Hong Kong SPV whose shares are transferred outside Hong Kong.

Estate Duty and Inheritance Tax Considerations

Hong Kong abolished estate duty for deaths occurring on or after 11 February 2006, per the Estate Duty (Amendment) Ordinance 2005. For a Hong Kong resident settlor, gold held in a Hong Kong trust is not subject to any Hong Kong inheritance tax upon the settlor’s death. This is a material advantage over jurisdictions like the United Kingdom, where inheritance tax at 40% applies to gold held in a trust above the nil-rate band.

For a settlor who is a US person, however, the US estate tax regime applies regardless of the trust’s situs. Under the Internal Revenue Code (IRC) section 2103, a non-resident alien’s US-situs assets are subject to US estate tax at rates up to 40% for values exceeding USD 60,000. Gold bullion is generally considered a “tangible personal property” under IRC section 2104(a), and its situs is the location of the physical asset. Therefore, if the gold is stored in Hong Kong, it is not US-situs property and is not subject to US estate tax. The trust deed should explicitly state the storage location to support this position.

Practical Implementation Steps for Trustees

Vault Selection and Custody Agreement Negotiation

The trustee must select a vault that meets both HKMA SPM SA-2 requirements and the trust’s specific needs. The three major institutional vaults in Hong Kong are HSBC’s bullion vault at 1 Queen’s Road Central, Standard Chartered’s vault at 32 Des Voeux Road Central, and Malca-Amit’s vault at the Hong Kong International Airport Free Trade Zone. Each offers allocated storage for LBMA Good Delivery bars, with fees ranging from 0.12% to 0.25% per annum for segregated storage.

The custody agreement must include specific clauses addressing: (a) the trust’s LEI and trust deed reference number on all records; (b) the monthly custody statement with bar serial numbers; (c) the right of the trustee (or an independent auditor) to conduct a physical inspection of the vault at least once per year; and (d) the custodian’s obligation to maintain insurance coverage of not less than the full replacement value of the gold, with the trust named as the loss payee. The SFC’s Code of Conduct paragraph 5.5 requires that any asset held by a custodian on behalf of a client must be “clearly identified as belonging to the client” and “segregated from the custodian’s own assets.”

Trust Deed Drafting for Gold Allocation

The trust deed must include specific provisions for precious metals allocation to avoid ambiguity. For a BVI VISTA trust, the deed should designate gold as a “designated asset” under section 6 and specify that the holding company’s directors have exclusive authority to manage the gold. For a Hong Kong STAR trust, the deed should include a “statement of the trust’s objects” under section 37C(2)(b) that defines the gold allocation parameters.

The deed should also include a “gold-specific investment clause” that authorizes the trustee to: (a) acquire physical gold bullion of LBMA Good Delivery standard; (b) store the gold in a Hong Kong vault with an AI that meets HKMA SPM SA-2 requirements; (c) sell the gold only with the consent of the protector (if any); and (d) reinvest the proceeds in gold within 90 days of sale to maintain the allocation. This clause protects the trustee from claims of breach of duty if the gold price declines, as the trustee is acting within the express authority of the deed.

Compliance Calendar and Reporting

The trustee must establish a compliance calendar that includes: (a) monthly review of the custody statement from the AI, verifying bar serial numbers against the trust’s asset register; (b) quarterly reconciliation of the gold weight against the trust’s accounts, with any discrepancy reported to the protector within 7 business days; (c) annual physical inspection of the vault, with a written report to the beneficiaries; and (d) annual filing of the trust’s accounts with the relevant registry (for STAR trusts, the Companies Registry; for VISTA trusts, the BVI Financial Services Commission).

The trust’s annual accounts must disclose the gold holding as a separate line item, with the valuation based on the LBMA Gold Price PM fixing on the last business day of the trust’s financial year. The accounts must also include a note confirming that the gold is held in allocated, segregated storage and that the custodian is an AI regulated by the HKMA. This disclosure satisfies the SFC’s Code of Conduct paragraph 5.5 requirements for client asset reporting.

Actionable Takeaways

1. Engage a Hong Kong-licensed trust company with direct custody arrangements at an AI that has implemented HKMA SPM SA-2 segregation protocols, and verify the custody agreement includes bar-level serial number reporting and quarterly reconciliation.
2. Amend existing trust deeds for BVI VISTA or Hong Kong STAR trusts to include a specific gold allocation clause that defines the permitted storage jurisdiction (Hong Kong), the acceptable refiner standard (LBMA Good Delivery), and the documentation requirements under LBMA RGG v.10.1.
3. Establish a compliance file for each gold bar containing the refiner’s certificate of origin, the custodian’s receipt with serial number, and the annual provenance certificate, maintained for at least seven years after disposal per AMLO section 13.
4. Document the trust’s investment objective for gold as a capital asset in the trust deed or an investment policy statement, and limit trading to no more than one rebalancing transaction per calendar year to support capital gains treatment under IRD Practice Note No. 3.
5. For US-person settlors, confirm the gold storage location is Hong Kong and document this in the trust deed to avoid US estate tax situs issues under IRC section 2104(a), and ensure the trust’s governing law excludes any automatic US trust classification under IRC section 7701.