Property Developers, Property Investors

UK and Hong Kong Tax Treaty

simon

Simon Misiewicz

23rd September 2021

Frequently asked questions about the UK and Hong Kong Tax Treaty.

As experienced tax accountants, we are regularly asked about the ‘UK and Hong Kong Tax Treaty‘. We will look to answer the below questions in this Article.

“Are you a Hong Konger paying too much tax in the UK?”

“Should I speak to a British accountant before moving to the UK?”

“What are the basics of the UK and Hong Kong Tax Treaty?”

“Do I have to pay income tax in the UK and Hong Kong?”

“Will Hong Kongers have increased tax if you become a UK Resident?”

“Is being domiciled a good tax strategy for the UK?”

“What is the Remittance Basis?”

“Can Hong Kongers claim the Remittance Basis?”

“What taxes do Hong Kongers have to pay in the UK?”

“Who are the best UK and Hong Kong tax advisors?”

Are you a Hong Konger paying too much tax in the UK?

Our tax specialists help over 1,000 monthly retained UK investors to minimise tax whilst building their wealth.

There are many reasons why Hong Kongers in the UK pay far more tax than they need to.

This is because:

-They do not know what they do not know.
-They have not spoken to a tax specialist to go through their situation to see what tax reliefs are available to them.
-Their accountants or solicitor are not aware of the many reliefs available to their clients and are not taken advantage of.
-Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.

Should I speak to a British accountant before moving to the UK?

If you come to the UK and have UK employment income taxed in Hong Kong, you will usually need to pay UK income tax.

You should receive double tax relief by getting credit for Hong Kong taxes paid, to reduce your UK tax liabilities. This assumes that you declare your worldwide income to HMRC. Please note that you do not pay tax to the Inland Revenue Department in Hong Kong for any UK income.

If you are a Hong Kong resident with whom the UK has a double taxation agreement, you may be eligible for relief from UK tax if you spend less than 183 days in the UK and have a non-UK employer.

This is just one of the primary tax considerations to consider if you are coming to the UK from Hong Kong.

Speaking to a British accountant before coming to the UK is an essential step in helping to reduce and, in some cases, mitigate tax. Gaining UK tax advice early should be a priority.

We recommend that you speak to expert UK and Hong Kong tax advisors before moving to the UK.

Moving from Hong Kong to the UK

There are many things for you to consider when moving to the UK from Hong Kong. We have worked with a number of strategic partners to pull together a comprehensive check list of considerations when moving to the UK

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What are the basics of the UK and Hong Kong Tax Treaty?

As British tax accountants serving thousands of UK landlords that purchase buy to let properties, we know that the UK and Hong Kong Tax Treaty basics can seem like a daunting topic to understand.

To understand the importance of the UK and Hong Kong Tax Treaty, it is worth knowing the history of the relationship.

Hong Kong was a British colony from 1841-1941 and again from 1945-97 when sovereignty was handed over to China.

The UK 2001 Census recorded 96,445 Hong Kongers residing in the UK, while the office for National Statistics estimated that the Hong Kong-born resident population was 78,000 in 2009.

These figures do not include people born elsewhere who emigrated to the UK from Hong Kong and were raised here. It also does not have descendants of Hong Kongers born within the UK.

UK policy towards Hong Kong is massively influenced by its considerable commercial interests.

The first Double Taxation Agreement (DTA) between Hong Kong and the UK came into effect in 2011.

This Agreement covered all taxes imposed on total income or elements of income.

In the UK, it applied to Income Tax and Capital Gains Tax for individuals.

An updated DTA entered into force in the UK on April 2011 and can be reviewed in full here.

Contact one of our UK tax advisors today if you are moving to the UK from Hong Kong and are unsure of your tax position.

UK Tax when moving to the UK

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Do I have to pay income tax in the UK and Hong Kong? 

The UK tax system for individuals is based on two concepts: residence and domicile.

They determine the extent of an individual’s liability to pay tax in the UK.

Whether an individual is a UK resident for tax purposes is determined under the Statutory Residence Test (SRT).

A person is resident under the SRT for a specific tax year in the UK the tax year runs from 6th April to 5th April) based on the following factors:

– the number of days the person is present in the UK
– whether the person has a home in the UK
– whether the person works in or outside the UK
– whether the person has UK-resident family members
– the number of days the person has been present in the UK in previous tax years

Non-resident individuals have very limited liability to UK tax, other than UK-sourced income, income from UK property.

Will Hong Kongers have increased tax if you become a UK Resident? 

A Hong Konger becoming a UK resident will increase their UK tax liability significantly.

It is also possible to inadvertently become a UK tax resident. Care is needed to avoid this.

A Hong Konger moving to the UK will often be a gradual process involving several trips to view properties, co-ordinate schools and similar activities.

Over the course of a UK tax year, these trips could add up to class the person as a UK tax resident.

Hong Kongers who spend a significant amount of time in the UK should take tax advice on their UK tax residence status.

When a person becomes a UK tax resident, reporting requirements to HMRC can apply. Reporting obligations for non-residents are limited.

The default position for a UK resident individual is that they are liable to pay Income Tax and Capital Gains Tax on their worldwide income and capital gains.

Unlike in Hong Kong, this also includes investment income and gains.

Hong Kongers who are UK residents but non-UK domiciled can benefit from a tax regime that significantly limits their exposure to these taxes.

Is being domiciled a good tax strategy for the UK?

Domicile is a common law concept based on where an individual has their permanent home.

An individual inherits their domicile from their father at birth, but this can be displaced by a new domicile if the individual moves to a new jurisdiction with the intention of remaining there indefinitely.

An individual may be deemed domiciled in the UK for tax purposes where they are classed as a ‘long stayer’.

Domicile is important for UK tax purposes because:

– a non-UK domiciled individual may claim the Remittance Basis of taxation in relation to their non-UK income and capital gains
– an individual who is non-UK domiciled is only liable to pay Inheritance Tax on their UK-based assets and certain assets that derive their value from UK residential property

A Hong Konger would have a strong argument for claiming that they are non-UK domiciled if it is clear they are living in the UK temporarily and have a specific time in the future when they will leave.

There is always the risk of a domicile challenge by HMRC.

If you are unsure of your tax position in the UK but consider moving from Hong Kong, speak to one of our UK and Hong Kong tax advisors today.

What is the Remittance Basis?

Individuals who are resident but non-UK domiciled may elect to be taxed on the Remittance Basis.

This means that they are taxed when resident in the UK on their UK-sourced income and gains as they arise.

Non-UK income and gains arising in a year of residence are not subject to UK tax unless the income or gains are remitted to the UK.

The remittance basis gives a UK resident, non-UK domiciled Hong Konger the ability to shelter non-UK income and gains entirely from UK tax.

Remittance is defined as the income or gains being brought or used in the UK by the taxpayer or a person/entity connected to them. Examples of this would include:

– transferring non-UK income and gains from an overseas investment portfolio to a UK bank account
– paying a foreign credit card that has been used in the UK with non-UK income or gains
– gaining a UK residential property using non-UK income or gains
– servicing an overseas mortgage for a UK residential property using non-UK income or gains

UK tax advice should be taken on the above to maximise the benefits of the Remittance Basis.

Can Hong Kongers claim the Remittance Basis?

The ability for Hong Kongers to claim the Remittance Basis and the limited exposure to Inheritance Tax (IHT) for the first 15 years of UK residence means it can be an attractive place to live.

For a Hong Kong native moving to the UK, the most significant investment is likely to be purchasing a family home.

It is essential to consider the tax implications and the method of funding the purchase to ensure a tax-efficient strategy is in place.

With regard to UK tax issues, Stamp Duty Land Tax (SDLT) is payable on the purchase of land and property in England and Northern Ireland.

Higher SDLT rates apply to the purchase of UK residential property by non-UK residents, and where the purchaser owns other residential property elsewhere in the world. Reliefs are available.

The acquisition of a significant asset in the UK also raises the prospect of IHT on the owner’s death or the property’s gift in the owner’s lifetime. Capital Gains Tax would be liable on a sale or other disposal of the property.

We recommend speaking to a UK property tax accountant before making a property purchase here.

What taxes do Hong Kongers have to pay in the UK? 

Income from UK employment derived by a Hong Kong resident will be exempt from tax in the UK, as long as the recipient is present in the UK for no longer than 183 days in any 12 months, the remuneration is paid by a non-UK employer, and that the remuneration is taxable in Hong Kong.

The UK and Hong Kong Tax Treaty ensure that Hong Kongers do not pay tax twice on the same income.

A Double Tax Agreement (DTA) over-rides the domestic law in both the UK and Hong Kong.

If you are a non-resident in the UK and you gain UK bank interest, this income would be taxable as UK-sourced income under domestic law.

If you were resident in Hong Kong, the UK and Hong Kong Tax Treaty DTA would mean that the interest would only be taxable in Hong Kong.

HMRC would not be able to tax that income.

A Hong Konger in this situation would claim to HMRC on a Self-Assessment tax return to exempt the income from UK tax.

To discuss other ways of paying less tax in the UK, contact our team of UK tax accountants today.

Who are the best UK and Hong Kong tax advisors?

When it comes to speaking to the best UK and Hong Kong tax advisors, it is vital to get in touch with tax accountants who have experience dealing with the tax systems in both the UK and Hong Kong.

We recommend that you read this information on the best UK and Hong Kong tax advisors.

You may be interested in services where we help Hong Kongers moving to the UK. There are several legal matters and tax issues that you need to consider.

We have also written a helpful article about people Hong Kong citizens buying UK property investments.

You may also be interested in our upcoming live events with a panel full of professionals willing to take on your questions when moving to the UK from Hong Kong.

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