Early tax advice is essential for those moving to the UK from Hong Kong
Moving to the UK from Hong Kong? In response to new security laws being passed in Hong Kong, in June 2020, the UK Government confirmed plans to grant enhanced UK immigration rights to BN(O) passport holders in Hong Kong. There are currently around 350,000 BN(O) passport holders in Hong Kong and the Home Office estimates a further 2.9 million people are eligible in Hong Kong to apply for one.
UK Income Tax rates can be much higher than those in Hong Kong, at up to 45%. Furthermore, the UK has taxes on Capital Gains and Inheritance which do not apply in Hong Kong. Anyone looking to relocate or invest in the UK needs to have a clear understanding of the UK tax system and should consider pre-arrival tax planning a priority.
This will help you navigate through the complexities of the UK system and ensure that with careful planning, you only pay the taxes you ought to. For example, with careful planning Inheritance Tax and Capital Gains Tax could be reduced to zero, dependent upon individual circumstances.
With many Hong Kong citizens considering settling in the UK, our specialist tax advisers are on hand to advise on both personal and corporate tax matters. Additionally, Alexander & Co provides specialist property and real estate tax services, to assist both resident and overseas investors including those looking to settle in the UK.
Non-UK citizens moving to the UK from Hong Kong
When relocating to the UK, an individual becomes a UK tax resident. This means that, unless they can claim non-domiciled status, their worldwide income and gains are subject to UK Income Tax and Capital Gains Tax.
Since changes to UK tax law in April 2017, British ex-pats returning to the UK are unable to claim non-domicile status. Native Hong Kong citizens, like other overseas citizens that are not ex-pat, may, however, be able to claim this, depending upon individual circumstances. In these instances, only UK income is taxed.
To further complicate matters, where native Hong Kong individuals have British ex-pat spouses, there will be a mismatch in domiciles for UK tax purposes. For those relocating to the UK, early tax advice will be even more important here, to ensure tax liability is minimised, taking a joined-up approach to both persons’ tax affairs.
Purchasing a main residence in the UK
Those relocating to the UK, including those moving to the UK from Hong Kong are often faced with complexities in acquiring and owning a main residence in the UK.
Frequently for non-UK residents, it has historically been the preferred option to hold a main residence through a holding company as there are benefits related to estate and succession planning.
However, this no longer exempts the property from UK Inheritance Tax for non-UK domiciled individuals and non-resident discretionary trusts settled by them. When this is considered together with Annual Tax on Enveloped Dwellings levied on companies holding UK residential property valued at £500,000 or more and Stamp Duty Land Tax (which is at a flat rate of 15% for corporate purchasers of UK residential property), corporate ownership of a main residence in the UK is now rarely beneficial.
Obtaining accurate advice and careful planning here will ensure that when a main residence is purchased, it is structured in the most beneficial way, having consideration for minimising tax liabilities that may occur, both at the time of purchase and potentially in the future.
Tax issues for overseas relocators and overseas investors, including those moving to the UK from Hong Kong
For overseas investors and those looking to settle in the UK from overseas (including those moving to the UK from Hong Kong), they face a raft of additional tax legislation, no more so than in recent years. Here, there have been significant changes to how property/real estate is taxed in the UK, as the Government has focused on taxing non-UK residents at a higher rate.
Whilst much of this legislation may be complex, taking a pragmatic, considered approach and obtaining early, astute advice can help to navigate these issues and help to reduce these tax liabilities.
Notable recent changes to UK tax legislation for those relocating from overseas include:
UK Corporation Tax
Non-resident companies are now taxed UK corporation tax (at the current rate of 19%) on chargeable gains arising on UK real estate disposals. Previously, such gains had been subject to higher taxing rates of Non-resident Capital Gains Tax or Annual Tax on Enveloped Dwellings (ATED) related Capital Gains Tax. Therefore, the typical liability arising here is now reduced.
Extension of Capital Gains Tax
Capital Gains Tax has been extended to apply to the direct disposals of UK residential and commercial property for non-residents. This introduced differing rates of Capital Gains Tax dependent upon whether the chargeable gain arises from disposals of UK residential property or UK commercial property. The rate, dependent upon individual circumstances is between 10% and 28%
Indirect UK real estate disposals by non-residents disposing of shares in a ‘UK property-rich’ company, where there is a chargeable gain will be within the scope of Capital Gains Tax. A UK property-rich company is defined as one where 75% or more of its gross asset value is derived from UK land.
Stamp Duty Land Tax reduction until 31 March 2021
As part of the UK Government’s response to Coronavirus, the Stamp Duty Land Tax threshold has been temporarily increased to £500,000 until 31 March 2021. This also applies to investors and those purchasing a second home, although the standard 3% Stamp Duty Land Tax surcharge continues to apply.
Additional tax charges scheduled for 2021
In addition to these charges, further changes are due to come into effect in April 2021. From this date, non-UK residents purchasing residential property in England and Northern Ireland will be faced with a 2% surcharge on Stamp Duty Land Tax. This is in addition to the existing 3% SDLT surcharge for the acquisition of second homes or investment properties. It may be beneficial for anyone considering purchasing a UK property from overseas to do so before this date (the date of exchange is the effective date) to avoid this additional surcharge.
What this means for prospective overseas purchasers
The complexities of the UK property tax system, and its ever-changing landscape, highlights the need to be properly advised to ensure that any purchases are structured efficiently to maximise returns and minimise tax liabilities. With careful planning and structured advice, the UK tax system needn’t be a barrier when considering a relocation or investment in the UK.
Moving to the UK from Hong Kong – what action do you need to take?
Those considering relocating to the UK, even on a temporary basis should take professional tax advice as soon as possible.
Pre-residence planning is essential for all individuals considering working or living in the UK, especially for non-UK domiciled individuals. Ideally, this should be carried out in the UK tax year before the planned year of arrival. If the proposed arrival date is sooner, then advice should be sought immediately.
UK tax laws frequently change, coupled with the complexities of the system, necessitate regular, specialist tax advisory. Additionally, the UK (and Europe) is very heavily regulated and a clear understanding of this legislation is also required to comply with financial regulations that cover tax evasion, money laundering, and terrorist financing.
Alexander & Co provides a comprehensive range of tax services that are essential for individuals looking to settle in the UK. The following are some of the services that are regularly required:
Reviewing individuals tax status when moving to the UK
- Advising on the UK statutory residence test
- Reviewing domicile and deemed domicile status
- The use of split year treatment, (where you only pay UK tax on foreign income based on the time you are living here)
- The application of double tax treaties applicable to an individual’s circumstances
Tax advice for those choosing to relocate to the UK, including those moving to the UK from Hong Kong:
- Reviewing how worldwide assets are held and providing recommendations on how to adapt these, efficiently from a tax point of view
- How to structure your affairs in a tax-efficient manner, including both the arising and remittance bases of taxation
- How to fund living costs in the UK in a tax-efficient manner
- How to structure both UK and non-UK bank accounts
- The segregating of offshore accounts between ‘clean capital’ and post-UK residence non-UK income and capital gains for remittance planning purposes
- Ensuring that investments or businesses are compliant with immigration status and visa requirements
- Tax advice regarding purchasing or transferring a UK property
- Tax planning for both married and unmarried couples relocating to the UK
- Tax and succession planning for individuals and their family
- Inheritance Tax planning to ensure those with high-value estates minimise the 40% Inheritance Tax on their death
Tax advice on businesses related issues
- Tax issues arising due to employment and self-employment
- For those with non-UK resident asset holding structures, (e.g. holding companies or discretionary trusts, where the individual exerts a high degree of control or influence) advice on retaining these assets outside of the liability of UK taxation.
- Managing and investing in both UK and non-UK businesses whilst a UK resident
Contact our specialist tax team at Alexander & Co
For further information on the specialist tax services we offer and how we can help you, please do not hesitate to get in touch with us.
Our expert accountants and specialist tax advisors can provide the necessary advice you require, in an uncomplicated, easy to understand manner. This will help to make sure any investment of relocation in the UK is as straightforward, and efficient as possible.