Moving or investing in the United Kingdom or moving or investing in Hong Kong: Either way it could cost you more tax than you bargained for. Have you planned ahead?
Paying taxes in the United Kingdom and Hong Kong
Looking to move or invest in the UK: Hong Kongers need to remember that they still need to file tax returns to the Inland Revenue Department each year if they have a financial interest in their home country. Depending on the number of days living/working in the UK will determine if you also need to pay tax to HMRC.
Looking to move or invest in Hong Kong: Depending on the number of days that you choose to live in Hong Kong will determine your Hong Kong tax residence with the Inland Revenue Department. British people that become tax residents in Hong Kong will need to apply for a TIN number. Brits will then need to submit Hong Kong tax returns if they receive income from Hong Kong. The Inland Revenue Department will not charge tax on foreign earnings in most cases.
Our international tax advisors can save you tax in Hong Kong and United Kingdom
What do you need to consider when moving from or to Hong Kong
VISAs and residency
You may need to file and submit tax returns in both the UK and Hong Kong based on the number of days that you reside in each country and how much money you earn in those counties.
There is a double tax treaty between the UK and Hong Kong. However, you may not get full tax relief in one country for the tax you have paid in the other. Most people find that they pay more tax in the UK than they do to the Inland Revenue Department in Hong Kong
Tax return dates
Hong Kong’s Inland Revenue Department work on a 1st April to the following 31st March date for tax purposes. This is not the case in the UK where income is taxed by HMRC from 6th April to the following 5th April. Not only do you need to consider different timings but you also need to consider the foreign exchange rate differences too
UK entry tax charges
People moving to the UK may pay more Stamp Duty Land Tax when buying a UK home than they need to. There are two types of SDLT surcharges that may easily be avoided with some careful tax planning.
IHT and legacy planning
It is important that you understand how income and investments are taxed in both Hong Kong and United Kingdom to avoid horrific tax charges and penalties. You can use certain tax structures that will help you become tax efficient in both countries
International tax planning
It is one thing to earn money but another to keep it. Make sure you work with an international tax planner to avoid paying too much tax to HMRC in the UK or The Inland Revenue Department in Hong Kong
Before you leave Hong Kong to the UK please be aware of the different tax rates. The Inland Revenue Department in Hong Kong will only charge up to 17%. HMRC in the UK may charge you up to 45% tax. Big difference.
The Inland Revenue Department in Hong Kong will not charge you estate tax when you die. The UK are not so generous and will tax you 40% on your assets above your lifetime IHT allowances that currently stands at £325,000 individual £650,000 couples
Hong Kong tax and UK tax considerations when moving
We are sure that you have considered many things about leaving Hong Kong to the United Kingdom. Vice versa applies if you are leaving the United Kingdom to move to Hong Kong
We appreciate that it is not a priority or natural to consider the amount of tax being paid to the Inland Revenue Department in Hong Kong or tax paid to HMRC in the UK, especially with the excitement of a new country.
That said the oversight of financial planning could cost you more tax than the cost of moving to a different country. Think about it another way. You may spend up to £30,000 or $300,000 moving to or from the United Kingdom / Hong Kong. However, the overpayment of tax could dwarf this amount time and time again and may be compounded over time.
You need to consider the basics. Do you need to pay tax in the country you are moving to? Fortunately, both the UK and Hong Kong gives similar tax treatments to residency. There are nuances in both counties so please get some advice from our international tax advisors before you move.
You may need to register with HMRC in the United Kingdom or with the Inland Revenue Department in Hong Kong to file and pay your taxes. It is straightforward in getting a Unique Tax Reference (UTR) code from the HMRC in the UK and a Taxpayer Identification Number (TIN) from the Inland Revenue Department in Hong Kong.
The tax years are different in Hong Kong as they are in the UK. The Inland Revenue Department Hong Kong tax system uses the dates 1st April to the following 31st March. The HMRC British tax system uses a fiscal year that starts from 6th April to the following 5th April.
Hopefully, you will see that you cannot simply transfer data from one tax return to another. If life was simple, you would be able to get your investment income on your Hong Kong tax return, which is submitted to the Inland Revenue Department, onto your HMRC SA100 tax return. Sadly, this is not the case, and you will need to take your earnings on a month by month basis. This could of course mean that you will pay different levels of tax in Hong Kong than you do in the UK.
An additional consideration here is the exchange rates. Hong Kongers that leave Hong Kong to the UK may cause themselves financial problems by exchanging their money with a low exchange rate. The vice versa clearly applies. It is important to work with a financial specialist to help you get the right exchange rate when converting Hong Kong dollars to British pounds (Sterling).
The exchange rate also provides potential problems to people that wish to do their tax returns. This is because HMRC and the Inland Revenue Department have exchange rates that need to be adhered to. Be sure to get this right to avoid investigations from either tax authority. Our international tax advisors are here to help you do your tax returns in either country.
It is entirely possible for you not to pay tax either in the United Kingdom or in Hong Kong as a British person moving to Hong Kong with some careful tax planning of when you actually move.
You must also remember that there is no tax suffered by the Inland Revenue Department in Hong Kong on UK earnings. This is because Hong Kong tax system does not tax you on foreign earnings. Please be sure to get tax advice before you assume anything. There may be nuances to this statement and it is general in nature.
This could mean that you earn money either in Hong Kong or the United Kingdom without any tax impact in the other country.
HMRC in the UK allows you to pay tax on a remittance basis. This means that you do not need to pay UK tax to HMRC on money earned in Hong Kong. However, you need to be careful not to pay a UK tax surcharge of the remittance basis that outweighs the benefits outlined. In addition, using the remittance basis in the UK means that you do not get a UK personal allowance. This could result you paying more UK tax than you need.
It is important to speak with an international tax advisor that understands the complexities of the UK tax system called HMRC and that in Hong Kong under the Inland Revenue Department.
Hong Kongers moving to the UK need to be careful about exit charges. Albeit there are no Capital Gains Tax in Hong Kong there is a danger that you will pay this tax if you sell certain assets in Hong Kong once you start paying tax in the United Kingdom.
We need to also consider you buying a home in the UK. In the UK you pay a tax called Stamp Duty Land Tax, also called SDLT, when you buy a home. There are also special surcharges of 3% higher rate if you already own a home anywhere else in the world. The 3% SDLT higher rate applies to the total value of the property, if the property exceeds £40,000. Let’s be fair this basically means you pay 3% on the entire property value.
Buying a UK home will mean you pay the extra unnecessary 3% SDLT surcharge if you keep your Hong Kong home. It is important to think about selling your Hong Kong home before buying a home in the United Kingdom.
There is also another SDLT surcharge that you need to be aware of. This is called the 2% foreign surcharge. Like the 3% SDLT higher rate the 2% SDLT foreign surcharge applies to the total value of the property. This may easily be avoided if you wait to buy a UK home when you get into the country from Hong Kong.
As you can see that there is a great saying in the world of international tax that applies to all financial decisions: Fail to plan and plan to fail. Tax is not the biggest concern for many families but could be the death of your family wealth if you do not focus on it.
Whether you wish to live in the United Kingdom or in Hong Kong you need to think about tax on your investments that receive special tax treatment in your home country.
Hong Kongers moving to the United Kingdom need to consider the longer-term tax effects on their wealth. The Inland Revenue Department does not charge death estate tax on Hong Kong families that pass assets down to their children
HMRC in the United Kingdom charges a 40% inheritance tax on potentially worldwide assets above their UK lifetime allowance. This could cost many people moving from Hong Kong a lot more tax than they bargained for.
Imagine that you are in your fifties and move to the UK from Hong Kong. 16 years later you pass away and think that there are no estate taxes or inheritance tax to worry about. Your loved ones then receive a tax demand from HMRC for millions of pounds because the worldwide assets exceed their IHT lifetime allowance.