5 Things Hong Kong Investors Should Know About Property Tax in the UK

Hong Kong is renowned for having one of the most expensive property markets in the world. With the city’s extortionate prices and low demand, investors have long looked to other markets for buy-to-let property. For many years, the UK has been a safe haven for overseas investors, with an increasing population and strong yields allowing for both short- and long-term returns.

However, property tax in the UK is considerably different for overseas investors. From Capital Gains Tax to Income Tax and Stamp Duty, there are a wealth of considerations for Hongkongers investing in the UK property market. To help overseas investors prepare for their buy-to-let journey, we’ve discussed the top five things Hong Kong investors should know about property tax in the UK.

Stamp Duty Land Tax

Stamp Duty Land Tax is a necessary payment for the majority of people purchasing property in the UK. While (UK based) first-time buyers are exempt from Stamp Duty Land Tax, those who aren’t in this category will be required to pay tax on the completion of their transaction.

Understanding Stamp Duty Land Tax can be complicated, especially with the varying band rates and additional charges for overseas buyers. Investors or homebuyers won’t be required to pay tax on properties below the value of £125,000, but those looking to purchase a property at £125,001+ should be prepared to pay 2% Stamp Duty Land Tax.

However, these tax bands increase as the property gets more expensive. For example, buyers will be required to pay 5% Stamp Duty Land Tax on the portion priced between £250,000 and £925,000, which then increases to 10% between £950,000 and £1.5 million. The portion of the property valued at over £1.5 million will be taxed at 12%.

However, for investors, there is also an additional Stamp Duty charge. All buyers purchasing additional properties will face a 3% surcharge at least, but this can be as high as 15% on top of the base rate Stamp Duty charge, depending on the price of the property.

For overseas investors, including Hong Kong buyers, there is another tax payment to consider. An additional 2% surcharge for overseas investors purchasing UK property was introduced on 1st April 2021, which when combined with the Stamp Duty base rate and additional property tax, Hong Kong investors could be paying at least 5% on top of their purchase price and base rate Stamp Duty Land Tax.

Related: 5 Myths About Property Investment in the UK For Overseas Residents

Income Tax

While Income Tax isn’t exclusively a property tax in the UK, it is a key consideration for overseas investors looking to purchase buy-to-let property. If you’re investing in the UK market, you’ll need to register for UK taxes, regardless of whether you’re exempt from paying them.

Hong Kong investors living outside of the UK are taxed at 20% of their total income up to the value of £34,500 – by which point, the next band comes into effect. For those residing in countries with a Double Taxation Agreement (DTA), there will be certain restrictions on what the UK Government can tax to avoid both countries taxing the same thing.

However, if you’re a UK Expat living in Hong Kong looking to invest in UK property, you can access a ‘personal allowance’. At £11,850, this means that any rental income below this amount is tax-free, but anything above this amount up to the value of £46,350 will be taxed at 20% – profits higher than this amount will be taxed at a higher rate.

When it comes to property tax in the UK, there are a wealth of considerations. Before making any purchases, it’s often best to seek the help of a financial advisor, as this article is designed as a guide only.

Capital Gains Tax on UK Property

Capital Gains Tax is a mandatory payment on the gains made from an UK investment asset, including those on the sale of a buy-to-let property. The amount of Capital Gains Tax you stand to pay on UK property depends on your income tax bracket, but is generally calculated by subtracting the sale value from the purchase price to determine the gains on the investment – this profit is then taxed.

Capital Gains Tax rates are 18% or 28% for individual investors, 20% for companies and 28% for trustees.

While there is the opportunity for overseas investors to claim relief from Capital Gains on UK property, there are certain stipulations surrounding this. To qualify for tax relief, the investor is required to live in the property as their ‘main’ residence for at least 90 days of a single tax year. For each year an investor meets these expectations, the profit is exempt from Capital Gains Tax.

However, the risk of living in the property for 90 days of a single tax year is that the investor may be considered a UK resident, which can come with extra fees.

UK expats are also included in this. Up until 2019, UK expats were exempt from paying Capital Gains Tax on UK property if they had been a non-UK resident for five consecutive tax years. Nevertheless the new laws surrounding now require any overseas investors and UK expats to pay Capital Gains Tax on their profits.

Non-Resident Landlord Scheme

Overseas investors are required to pay Income Tax via a Non-Resident Landlord Scheme. As opposed to paying tax on their rental income in their home country, the Non-Resident Landlord Scheme means investors pay UK tax rates to avoid double taxation. However, only non-UK residents who live outside of the UK for six months (or more) of a single year will be required to join a Non-Resident Landlord Scheme.

For Hong Kong investors, the DTA between the UK and Hong Kong means that investors won’t be taxed on their rental income in both countries – only Hong Kong.

Inheritance Tax

Similar to Capital Gains Tax, Inheritance Tax is paid on any investment assets in the UK, including property. However, this tax is based on your ‘country of domicile’ as opposed to residency status, meaning the rulings can vary, especially for expats.

For those who were born and raised in the UK, you’ll probably be considered ‘UK domiciled’ for Inheritance Tax purposes. This means that if you have an estate worth £325,000 or more, 40% Inheritance Tax will be paid on death.

From Income Tax to Capital Gains Tax, there are many moving parts that come with investing in UK residential property. The additional Stamp Duty payments and tax requirements often makes for a longer process for Hong Kong investors, but with the opportunities that come with this asset, it’s no surprise that it remains a safe haven for overseas investors.