5 Things Hong Kong Investors Should Know About UK Property Tax
While political uncertainty continues to be headline news, statistics show that the UK remains a leading international target, especially for investors based in Hong Kong (HK).
With the Hong Kong Dollar (HKD) at its strongest position seen in recent times, there’s never been a better time for HK investors to start considering ways in which they can leverage value against weaker currencies.
While we’ve already identified how HK investors can build value using UK property, it’s important to understand the tax implications that come with such an investment. Below we round up the top five things Hong Kong investors should know about UK property tax.
Stamp Duty Land Tax
As a tax unique to the UK market, Stamp Duty Land Tax (SDLT) is applied to all property purchases over a certain price. Measured in bands, it starts at 2% for properties worth between £125k and £250k before increasing to a maximum of 12% for properties over £1.5 million.
|Band||Normal Rate||Additional Property|
|less than £125k||0%||3%*|
|£125k to £250k||2%||5%|
|£250k to £925k||5%||8%|
|£925k to £1.5m||10%||13%|
|rest over £1.5m||12%||15%|
Introduced in April 2016, a levy of 3% is also applied to additional properties – whether they’re an investment property for Buy-to-Let or a second residence.
Any UK-based investment property requires the owner to register for UK taxes – whether they need to be paid or not. Hong Kong citizens living outside of the UK are taxed (in the UK) at 20% of their profit until the total UK income hits £34,500 – which is when higher rates apply.
Should the non-resident have residence in a country that has a Double Taxation Agreement (DTA) with the UK, the UK’s ability to tax certain income streams will be restricted to avoid both countries taxing the same thing.
For British expats in Hong Kong, a ‘personal allowance’ is available. When applied, this means that the first £11,850 from profit of rental properties may be tax-free. Anything between £11,850 and £46,350 are taxed at 20% and higher rates kick in when in excess of £46,350.
It’s always advised to speak to a financial advisor before you progress through your investment, so you’re fully aware of any implications you may face down the line.
Capital Gains Tax
Capital Gains Tax (CGT) is a mandatory tax paid upon the sale of a property. It’s calculated by subtracting the sale value of the property from the purchase value to identify the gain – which is then taxed. In 2015 changes to the rules for expats and non-resident owners means:
CGT must be paid if you’re a UK expat, non-UK resident individual or part of a non-resident partnership, company or trust that owns UK property.
Previously, the rule was that you’d be exempt from CGT provided that you are a non-UK resident for five consecutive tax years.
Non-Resident Landlord Scheme
Overseas investors are required to register to pay income tax under the Non-Resident Landlord Scheme. A non-residential landlord only pays income tax on rental profits in the UK, rather than paying the tax in the country they’re based. This avoids double taxation and only applies to investors that live outside of the UK for at least six months. In any partnership, each person is a separate landlord.
The Non-Resident Landlord Scheme requires overseas investors to register to pay income tax on any rental profits in the UK, rather than paying tax in the country of their residence. This only applies to investors that live outside of the UK for at least six months. Because of the double taxation agreement between the UK and Hong Kong, HK investors will not be taxed on UK rental income in both countries – just the country of their residence.
Inheritance Tax (IHT) isn’t based on your residency status but rather your ‘country of domicile’. This makes the rulings slightly different, especially if you’re a UK expat. If you were born or raised in the UK, it’s likely, for IHT purposes, that you’ll be considered ‘UK domiciled’. This allows HMRC to apply the tax to your worldwide assets at a rate of 40%, providing your estate is worth above £325,000.
For more specific questions around tax and personal circumstances, investors should always speak with a qualified tax professional.