Article relevant to the tax year 2020/21 – considerations for Hong Kong citizens that are looking to invest or move to the UK
You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord.
Should you invest in the UK buy to lets as a Hong Kong citizen?
You may be looking to the UK for investment purposes for several reasons.
– Stability issues surrounding China and Hong Kong
– Wish to spread investments risk across a multitude of countries
– May wish to live in the UK
– Have family members looking to move to the UK
– Want to buy a property that has a lower cost per square foot to generate an income
I am sure that there are many additional reasons why people from Hong Kong will look to invest in the UK, but it gives us a basis for this article.
Hong Kong citizens that invest in UK property need to think about tax.
There are different elements of tax that you need to be mindful of.
Stamp Duty land Tax (SDLT) when buying a buy to let property
Stamp Duty Land Tax (SDLT) when you purchase a UK property. There is a banded rate for SDLT and additional surcharges that apply given certain circumstances when you are a Hong Kong citizen and wish to buy in the UK.
You need to be aware that you would have to pay a 3% SDLT higher rate if you purchase a buy to let investment and then choose to buy a home. The 3% SDLT higher rate may be avoided if you buy a home and then purchase property investments in your name. Equally, the 3% SDLT higher rate may also be avoided if you purchase buy to let investments in a limited company.
There are some other considerations with the 2% foreign SDLT surcharge if you stay and live in Hong Kong. This 2% SDLT foreign surcharge can be removed if you have plans to move to the UK.
UK Income tax and corporation tax for Hong Kong citizens
Income tax or corporation tax. You will pay income tax on any profits that you make on UK property investments. Income tax rates are tiered based on the amount of money that you earn and range from 0% to 45%. Please note that the 45% UK income tax rate may be exceeded where you have residential investments with a buy to let mortgage, which is often referred to as Section 24 mortgage interest relief cap.
Personal allowance. Similarly to the Hong Kong tax laws, you are eligible for some tax-free income called personal allowance of £12,500. The personal tax-free allowance is not given if you invest in the UK buy to lets but remain in Hong Kong. Equally, the tax-free personal allowance is not provided if you only wish to be taxed based on the UK generated income and not worldwide income.
You may choose to pay tax based on your world0wide income or be taxed just on the money you earn in the UK. There is a lot of detail about residency status, domicile and the remittance basis charge.
Corporation tax. There is a flat rate of just 19% corporation tax based on the profits made in a limited company.
Download your buy to let tax guide here, written by our property accountants
Capital Gains Tax issues for Hong Kong citizens
There are no capital gains tax issues for people that sell assets in Hong Kong.
However, in the UK Capital Gains Tax (CGT) is chargeable on sold assets. This is a tax charge on any gains that you make on an asset. You will be 10% (18% for residential property) as a basic rate taxpayer and 20% (28% for residential property) as a high rate taxpayer.
There are many ways in which CGT may be mitigated.
UK Inheritance Tax considerations for Hong Kong citizens
It will come as a bit of a surprise to people living in Hong Kong as there are no inheritance tax issues there.
However, this is not the case in the UK, which has an Inheritance tax that is chargeable on assets over £325,000 on death. Some countries call this estate tax. The amount of tax on the excess of £325,000 for one person is 40%. If you have a home over £325,000, the IHT band may be increased to £500,000.
You will only pay 40% inheritance tax on UK assets if you invest in the UK but live in Hong Kong. You will pay inheritance tax on worldwide assets if you are domiciled in the UK (a person living in the UK for more than 15 out of the last 20 years).
Hong Kong citizens to take advantage of the UK exchange rate.
People from Hong Kong can take advantage of the currency situation. At the time of writing the currency exchange rate has varied between $0.09 to $0.11.
This may not sound that much but can make a significant difference when you are about to invest between £100,0000 to £500,000 to purchase a UK buy to let property investment.
One of the ways that you can exchange money from Hong Kong to Great British Pound is to use a company called transfer wise.
Hong Kong tax considerations when buying UK property investments
Many tax-free allowances reduce Hong Kong taxable income. The types of tax allowances are dependent on whether or not you:
– Are married
– Have children
– Disability allowances for you or dependents
– Dependents being brothers and sisters
– Dependents being grandparents
You will not pay tax on Hong Kong on any earnings made in the UK (investment income/dividends). As such, you could transfer money earned in the UK to Hong Kong without worrying about paying more tax.
You are most likely to be paying more tax in the UK than you are in Hong Kong. This is because the basic rate tax band in the UK is 20% and the UK corporation tax rate is 19%.
This also means that you will are more likely to pay more tax if you allow your worldwide income to be taxed in the UK. That said you would benefit from a tax credit for the tax already paid in Hong Kong.
There are no Hong Kong Capital Gains Tax (CGT) or Inheritance (IHT) issues as we have described for the UK. As such, you do need to think carefully about investing and living in the UK when you are from Hong Kong, which is a low-taxed country.
If you want to know more, then please read our “buy to let tax tips for UK landlords” article.
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