Hundreds of thousands of Hong Kong individuals are expected to emigrate in the next few years, as the Chinese Government continues to restrict long held freedoms in the city, originally provided for under British Colonial rule until 1997. Many are completely disillusioned with the current political climate, Beijing consistently introducing measures that are clearly intended to move further away from democracy and which now include restrictions on freedom of speech.
Emigrating to another country, in an effort to recover these lost freedoms, will quite rightly, be their top priority, but it will also be a daunting prospect, with many leaving family and friends behind in their home country.
One of the legacies of British Colonial rule is the BNO passport, which is a document that can provide an eventual path to British citizenship. BNO holders and their immediate family members will be eligible to stay in the UK for up to 5 years, at which point they can apply for settlement and subject to requirements, citizenship. They must first start by applying for a BNO visa which comes with its own cost for each family member, as well as upfront charges to cover Immigration Health Surcharges. A family of 4 with two children, would be looking at costs of around £12,000.
This new visa allows you to work, study and use the NHS, as well as children accessing free state school education. One important aspect however, is that you must be able to demonstrate financial independence for you and family members for a minimum 6 month period.
It follows that organising your financial affairs ahead of UK entry is crucial and this includes awareness of potential UK tax obligations, perhaps leading to restructuring of assets before even entering the UK, to enable significant short and long term tax savings.
UK Tax Residence
UK Tax Residence is based on a number of tests. The common denominator in all tests, are that tax residence is largely connected to the amount of days you spend in the UK in any tax year. The more the days in the UK, the more likely you will be considered a tax resident.
As a UK tax resident, the default position, is that you will be subject to UK tax on your worldwide income and gains as they arise, with current income tax rates of up to 45% (46% in Scotland) and capital gains on sales of assets charged up to 28%.
Managing the exact first day of UK tax residence is therefore important and this is not necessarily when you fly into the country. Advice taken before arrival is crucial to ensure there are no unexpected tax bills thereafter.
Non UK Domicile
When you first move to the UK, you will probably qualify as non UK Domiciled, which means you can choose between two methods of taxation:
- Arising Basis – You will be taxed on income and gains as they arise, wherever they are in the world and irrespective of funds not also being paid into the UK.
- Remittance Basis – You will be taxed on UK sourced income and gains as they arise, but only subject to tax on overseas sources if they are remitted / paid to the UK.
For the first 7 years of UK residence, there is no charge to use the Remittance Basis, but in years 8 to 12, there is an annual tax charge of £30,000, rising to £60,000 up to the 15th year. Thereafter you would be deemed UK Domiciled and subject to tax on the arising basis.
The Remittance Basis can therefore allow for some significant tax planning in terms of allowing for offshore funds to remain outside the UK tax net, particularly for the first 7 years of residence, but only assuming no capital relating to these overseas sources is brought to the UK.
Domicile status will also impact UK Inheritance Tax (40%) on your assets held on death. Non UK Domiciles can exclude foreign assets from this charge, but UK domiciles must include their worldwide assets. Overseas assets can potentially be sheltered from this charge, but only if a particular trust structure is created prior to becoming UK domiciled, so again forward tax planning could save significant future liabilities.
Investing in the UK - Property
Relocating families will need homes here, plus many will see UK property as a good investment. The UK property market has already seen keen interest from Hong Kong buyers, but UK tax laws have seen significant changes in recent years, largely impacting overseas investors. Changes include:
- Increases in Stamp Duty Land Tax (SDLT) and the Scottish Equivalent LBTT for Higher value residential properties – up to 15%
- 3% (4% in Scotland) additional SDLT surcharge for purchasers of second homes and corporate purchasers
- 2% additional SDLT charge from April 2021 on foreign investors acquiring residential property in England
- Reduction in loan interest tax relief for private landlords
- UK Residential property will be subject to UK Inheritance Tax (IHT), even if held within any form of corporate envelope or trust.
Because of the many different tax aspects, it is essential that professional advice is taken prior to any acquisition of property in the UK. Our International Tax Teams have significant expertise in advising individuals and businesses in how to acquire UK property assets as tax efficiently as possible, either privately or via UK or overseas company structures.
Pre UK Entry Tax Planning
The complexities of the UK tax system can readily lead to innocent reporting mistakes and in some cases avoidable tax liabilities. The Global Automatic Exchange of Information Agreements allow HMRC a clear view of all UK residents overseas income, gains and assets held, including those held in Hong Kong. It has therefore never been more important to ensure that overseas aspects are correctly interpreted and reported in the UK, alongside bespoke, proactive, pre UK entry tax planning. This is where we can step in.
We have decades of experience advising globally mobile individuals and businesses and so are uniquely placed to offer you the planning and compliance advice required. With help from our global network of trusted partners, a number of whom are based in Hong Kong, we can offer a truly holistic, valuable yet realistic, joined up approach to your global tax position.
Planning well ahead of UK entry is absolutely key, and we would encourage anyone considering a move from Hong Kong to the UK, to please get in touch with us for an initial free, no obligation discussion.
You can find out more about Private client tax and AAB's Business Advisory team here.