UK tax planning – living in Hong Kong
The destinations of Hong Kong, and in fact the Asia Pacific region, continue to be very popular with our UK clients. That’s no surprise. Recently, you have asked us to post more about Brits in that region and we have heard you; or 我哋聽到你 as they say in Hong Kong.
Life in Hong Kong for expatriates
My main role is to outline tax benefits and pitfalls for UK non-resident Brits in Hong Kong. But let’s just take a minute to look at the expatriate experience in HK for any new arrival. It’s a very attractive location : a fast paced even thrilling city, but a very a safe metropolis with little violent crime. An expatriate will find very high accommodation costs I am afraid ( which is where the Manhattan comparisons arise), but perversely very affordable home help. There’s a first class healthcare system and fantastic international schools. “What is not to like ?” our clients will say to us.
Leaving the UK – UK tax matters
So, your move to Hong Kong is agreed, and you are likely to contact us for help with UK tax and exit issues. You should definitely consider these points :
- Complete and file HM Revenue & Customs ( HMRC) exit form, the Form P85; to establish UK non-residence. This should not be attempted alone – you should seek help from a qualified tax advisor.
- Arranging your UK rental property in good order – UK non-resident landlords – will you engage a letting agent, where will you receive the monies, how will you cover UK taxes due, will your agent withhold UK tax source ( they should do).
- Managing your UK state pension – will you continue to make National Insurance contributions, should you do so, what is in your best interest.
- Filing your first UK tax return, year of departure – should you do this ? Yes, absolutely, there is a UK split year benefit to be claimed ( and many other UK tax reliefs) that can deliver a decent UK tax rebate.
- Filing future UK tax returns ( non-resident) – do you continue to file in the UK ? Unfortunately, yes, in all likelihood. If you are a UK non-resident landlord, you are almost certainly required to file. If you are not, I would still expect you to have a UK filing obligation. UK tax return demands from HMRC may well continue for some years.
Hong Kong (HK) tax incentives – new arrivals
Let’s look at a sample of tax issues for expatriates ( UK non-residents) arriving in Hong Kong. All tax matters are of course overseen by the Inland Revenue Department or IRD.
Non-Hong Kong (HK) employment contract
If you are not locally employed ( eg assigned by a UK employer), you should only be taxed on income earned in Hong Kong ie related to HK duties. This tax relief can be very lucrative for expats who work in multiple territories in that area eg 30% business travel around SE Asia.
Income tax rates – HK
You will be taxed at progressive rates and HK boasts a very favourable tax regime ( 2020 rates are shown here). Lowest tax rate is 2% on income less than HKD 50,000. Top rate of tax is 17% on income above HKD 200,000. In short, a very tax effective regime.
Deductions or allowable expenses – HK
Let’s summarise some of the expenses which can greatly decrease the amount of taxable income. For example, payments to the Mandatory Provident Fund ( social security scheme – see below) up to HKD 18,000 are fully deductible – a very decent tax relief in my view. We should also remember that a full deduction is allowable on home loan interest ( up to HKD 100,000) and self-education costs ( up to HKD 100,000). These amounts must are too generous to be overlooked.
Hong Kong (HK) tax – key regulations
Hong Kong tax year is the year ended 31 March.
Tax returns ae filed on an individual basis, but married couples can file jointly.
There is no VAT or similar in HK.
Estate duty – this was abolished in HK in 2006.
Social security ( MPF) – employees must pay 5% on relevant income subject to minimum and maximum limits eg 2020, the 0% monthly rate is HKD 7,100; and the upper limit is HKD30,000 per month.
Property taxation – owners of HK located property, are liable to tax on rental income at 15% ( of rent/service charges/fees etc).
….It’s just a blog ….
When blogging, we do not bombard you with every part of every tax law. That would be a long technical guide, which does not belong here. Please remember that, if you believe you may be able to claim relief, you should ask Oliver for a specific tax review. Every expatriate’s tax circumstances are different.