It is now nearly two years since protests took over Hong Kong, with marches continuing throughout the first few months of the covid-19 pandemic.
Considering the aftermath of the political unrest as well as the outbreak of the virus, many Hong Kongers have enquired about relocating to the UK, with the help of reliable unpacking services.
This is not the first time that political changes have prompted an exodus from Hong Kong, with many choosing to move overseas after the territory was returned to China by the British in 1997.
This long history is likely a catalyst for the UK government’s decision to introduce an immigration route under its British Nationals Overseas (BNO) programme for people residing in the special administrative region (SAR) to move to the United Kingdom.
In financial planning terms, advice firms in Hong Kong have been helping British expats return to the UK for decades, so it seems like the way is paved for people in Hong Kong looking to do the same.
But this is very frequently not the case.
Unsurprisingly, it is more complicated for a Hong Konger to move to the UK than for an expat to return.
To understand what moving from Hong Kong to the UK entails, and what needs to be put in place to ensure a smooth relocation, International Adviser spoke with Quilter International and Charlton House Wealth Management.
Jason Pearce, head of technical sales at Quilter International, said that the firm has been operating in Hong Kong for 30 years, “and for the first 29 years, 80-90% of our business was British expats working in Hong Kong planning on retiring back home at some point”.
But, since the summer, things have changed.
“Now we’ve got this whole new market, which is Hong Kongers seriously considering moving to the UK,” he added.
“We’ve seen a massive increase in inquiries from local people in exactly that position. And I’ve been doing, on average, two webinars a week for brokers, their clients, some of the banks, and some of the accounting firms, just to give people a brief introduction to UK tax; because in Hong Kong tax is very simple and very low, compared to the UK.”
In Hong Kong, Pearce said, the highest income tax band is 15%, “which is lower than the lowest rate in the UK”, so the plethora of taxes present in the UK “can come as a bit of a culture shock”.
Trust the process
Beside becoming familiar with the UK tax system, there are many steps that locals need to take before relocating.
That is why Quilter’s Pearce and David Snelling, investment director at Charlton House Wealth Management, strongly recommend people in Hong Kong take advice and finalise their tax positions in the financial year prior to their move.
This is to avoid relying on the ‘split year treatment’, Snelling explains.
“It is very complex, most people who move to the UK would probably qualify for split year treatment; but that means you can clearly differentiate the initial parts of the tax year, which is a period of non-UK residence – so any investment gains or income or whatever would clearly be taxable in Hong Kong in this scenario – and then the second part of the split year will be in the UK.
“But if split your treatment does not apply, it could mean that the individual might end up having income and gains that were realised while a Hong Kong resident, and they could actually still be brought into the UK tax net,” he warned.
“By planning in the tax year before someone makes the move, it is absolutely crystal clear as to where the taxing rights are.”
One thing Pearce suggested is for Hong Kongers to “wash out the capital gains” from their investments.
This is because people in the SAR are more likely to buy shares in a portfolio. “If those shares have got capital gains in them, you may want to sell them and buy them back again, before you become UK tax resident,” he said.
This way investors can rebase their shares at a higher level and avoid any capital gains liability when becoming a UK resident.
Another move, which both Snelling and Pearce recommend, is to open segregated bank accounts.
Many financial services professionals in Hong Kong may not be aware of the concept of clean capital – money that can be remitted to the UK without any fiscal consequences – that is why locals should seek to get separate bank accounts, especially if they are looking to claim remittance basis.
Doing so would mean having to pay tax only on income and/or gains brought to the UK; and segregated accounts could simplify things for Hong Kongers.
Pick and choose
Certain assets, however, should not be held in an insurance policy if relocating.
Pearce said that individual shares should be taken out of insurance policies because that makes them a personal portfolio, but any collective or cash instruments “are ideal to hold inside your insurance policy” when moving to the UK.
This is where having separate bank accounts comes in handy, he added.
They should also consider setting up an excluded property trust, Snelling said, because “if somebody is non-UK domiciled, they can settle assets into an offshore trust, and if they subsequently become UK domiciled, then those assets should not fall within their estate for UK inheritance tax purposes”.
This is especially true for Hong Kongers as they very often invest in property.
Both Pearce and Snelling emphasised how important it is to take financial advice early in the process.
Especially, as Pearce believes, that taxes will go up in the UK in the near future “without a shadow of a doubt”.
“My suspicion is that they won’t start raising taxes until we’re sort of through the very worst of the pandemic, and they can see what the size of the bill is eventually going to be because they want a fast economic recovery.
“But nobody’s going to be surprised if they increase the rates of capital gains tax, and probably do something with inheritance tax, as well.”
This is why it is paramount for Hong Kongers to settle their tax positions before relocating, or face having to pay quite substantial tax bills.
“Don’t leave it until the last minute,” Pearce reiterated. “Because if in June last year you’ve sold a lot of shares and crystallised a capital gain and you bring that into the UK, even though that will happen while you were still in Hong Kong, you could end up with an unexpected UK tax bill.
“The main takeaway for me is always take good advice from somebody who understands UK tax and knows some of the ins and outs and taxes, and take it as soon as possible.”