Following Boris Johnson’s decision earlier this year to extend visa-free access for Hong Kong’s 300,000 or so British National Overseas passport holders (with millions more eligible) from six months to five years, the Foreign Office are estimating that as many as 200,000 Hong Kong citizens may move to the UK. They will have the right to work and study in Britain during that time after which they can apply for settled status and official citizenship.
If you are considering the option of moving to the UK, relocation could be an attractive prospect for a number of reasons, but it is a decision which should not be taken lightly. Emigrating to a different country requires careful consideration taking many different factors into account, particularly if you have dependents.
And one of the most important of those factors is financial planning. The implications of a move to the UK on your financial situation can be wide-ranging and it is critical to understand the tax system, which is considerably more complicated, and punitive, than that of Hong Kong. You need to start planning well in advance of your move to work out how best to structure your finances and protect your wealth.
Below I outline seven important steps for Hong Kong residents considering a move to the UK:
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Understand the concept of domicile
Residence and domicile are two different things and understanding the difference is key to being able to set your financial affairs up in the most tax-efficient way.
Residence is relatively straightforward. You will be deemed UK resident if you spend 183 days or more in the tax year in the UK, if the UK is your main home or if you work full-time in the UK. If your situation is less clear cut, your residence status will be determined by the UK Statutory Residence Test (SRT).
Your domicile is the country of origin inherited from your father and usually your place of birth. You keep it for life unless you actively seek to acquire a domicile of choice (always seek professional advice on this), even if you reside abroad for long periods.
To confuse matters, the UK also applies the concept of deemed domicile, whereby you automatically take on a new domicile as a result of residence. Anyone who has lived in the UK for 15 of the last 20 years is deemed UK domiciled, and this can have a significant impact on tax liability (see below). My colleague, Jamie Bubb-Sacklyn, explains domicile in more detail in this blog post.
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Carry out an inventory of your worldwide assets
It is essential to review exactly what assets you own and where they are located before you can put a pre-relocation financial plan in place. Your financial inventory should include all your global investments including shares, properties, pensions, insurance policies and cash holdings. It’s a good idea to obtain valuations of all properties and investment portfolios on or as close as possible to your relocation date because the market value at that time may be needed to calculate capital gains if/when you sell later down the line.
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Get to grips with UK taxes
The UK tax year runs from 6th April to 5th April. The main taxes you need to be concerned about are as follows:
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Income tax
Current income tax rates and tax-free allowances can be found here. One key point to note is that UK domiciled residents are taxed on their worldwide income whereas non-UK domiciled residents are taxed on UK income only.
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Capital gains tax (CGT)
Capital gains tax is tax paid on the gain of the sale of investments such as properties and shares. The regulations and rates are outlined by HMRC here.
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Inheritance tax
UK IHT is charged at 40% and levied on the worldwide estate of anyone who is UK-domiciled. Non-doms will pay IHT on assets owned in the UK but not abroad.
Those who are non-UK domiciled may be able to claim a ‘remittance basis’ of taxation which grants an exemption from UK income tax and CGT on foreign income and assets however, specific conditions need to be met and this is only possible for a limited number of years.
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Consider setting up a trust
Trusts, specifically discretionary trusts, are a common financial planning tool used by Hong Kong residents who relocate abroad. A double taxation agreement exists between the UK and Hong Kong and, according to its terms, the trustee of a trust which is managed in Hong Kong is treated as resident in the country of effective management, which means that it is subject to Hong Kong tax but not UK tax, as long as the trust does not include UK assets. UK tax would still be payable on monies paid out to beneficiaries who are resident in the UK. Alternatively, it may be more advantageous to set up a trust in another finance centre, such as the Isle of Man. As ever, this is a complicated area of financial planning and should never be tackled without the assistance of a qualified and knowledgeable professional who can give advice based on your personal circumstances.
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Invest in life insurance
Certain types of life insurance, in particular life insurance policies with a high savings component, can facilitate tax-free growth and distributions as well as potential income tax savings, depending on your liability. It is important to ensure that policies are appropriately funded and titled and that they comply with stringent requirements on this type of policy in the UK. Death benefits from life insurance fall inside the estate of the insured but it may be possible to circumvent this by setting up an appropriate trust. Again, take professional advice before purchasing life insurance policies to ensure you understand all the implications.
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Sell your property in Hong Kong?
Selling your Hong Kong property before you leave might seem a hasty decision to make before you have even experienced living in the UK but it is worth considering right now. Freeing up cash to buy in the UK will enable you to benefit from the current stamp duty reductions but you’ll need to be quick. The exemption on stamp duty for purchases up to £500,000 is a temporary measure the UK government have brought in to kickstart the housing market in the wake of the Covid-19 slump. It could mean savings of up to £15,000 on a UK property purchase but the exemption only applies until 31st March 2021.
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Think carefully about when the best time is to move
The default position on UK residence is that you are resident for the entire tax year no matter when in the year you arrive. That can lead to the odd situation of being liable for tax in the UK on worldwide income for a period when you weren’t even resident there. There are ways around this using something called ‘split year treatment’. Like many tax issues, this is complicated and you’ll need a cross-border tax expert to navigate the complex rules which dictate this quirk of the UK tax system.
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Get professional help
I can’t emphasise enough how important it is to take professional advice from a cross-border specialist when planning to relocate from Hong Kong to the UK. Misinformation abounds and what works for your colleague and his family will not necessarily be appropriate for you and yours. You need bespoke solutions which take into account your particular circumstances.
Infinity’s team in Hong Kong are well versed in the issues facing BNO passport holders looking to relocate to the UK as well as expatriates returning home from Hong Kong. Please contact us if you would like to discuss any of the issues raised in this article.
Over the years I have helped hundreds of clients organise their finances. For me, financial planning is not limited to a single piece of advice and then moving on as is common in the industry. Instead, I like to build long term relationships and help people manage their finances to meet their needs as circumstances change. As a result, many of my clients have been with me for a number of years. They live throughout Asia and further afield but know that I am only a Skype or telephone call away.
