Relocating from Hong Kong to the UK

This article first appeared on ft.com

Question

My family – (me, two teenage children and my partner) – will be moving shortly to the UK under the government’s resettlement route. We will be leaving a property in Hong Kong that will be let to extended family members who will be staying for the time being, although we may sell that property if they choose to follow us to the UK. We will be bringing considerable savings and assets with us. Will we have to pay tax in the UK on those assets and savings we bring with us, and if we sell our property at a later date?

Answer

You don’t have to pay tax on assets that you own, or income arising prior to the start of the tax year in which become UK resident. You may however have to on the sale of your property. The UK’s ‘non-dom’ arrangements may be helpful.

UK residents are, by default, taxable on worldwide income and gains but if not UK domiciled, they can claim the ‘remittance basis’. Foreign income and gains (FIG) arising and kept abroad are not subject to UK tax.  This includes any rent but also income and gains arising from investments in overseas companies.

Domicile rules are notoriously complex. It can require looking at your parents’ and grandparents’ background as well as your own history of tax residency.

For the first seven years of tax residence, this claim is at limited cost for a HNW individual (maximum c£7,500 pa).  After seven years, the taxpayer has to pay £30,000 for years eight to 12 and £60,000pa for years 13-15 to claim the remittance basis.  After 15 years, the remittance basis cease.  Claiming the remittance basis and therefore paying the charge is decided each year, so it may be only when a sizeable FIG arises that it needs paying.

Also, if local tax is paid on the rental or sale of the property, this can be offset against a UK liability.  The net cost might mean that it’s not worth claiming the remittance basis.

‘Kept abroad’ means just that and ‘Use’ is widely defined – for example use of a credit card which is repaid from an account abroad which includes funds arising post tax residence is a taxable remittance.

It’s crucial to identify whether FIG is used in the UK.  The UK has onerous rules on identifying the tax status of cash from accounts where pre and post residence funds are mixed.  Post-arrival funds should be separated from pre-arrival amounts.  Establishing the accounts can be the most complex part of the process, but segregation before arrival can simplify matters later.

Gains should be realised prior to the tax year of arrival to boost the funds that usable tax free in the UK. Even if it’s not to be immediately used in the UK, then increasing the base cost of assets can be helpful.  Local advice should be taken to ensure this does not create issues.

HMRC frequently ask taxpayers to prove that funds used in the UK are from pre-arrival sources.  Records should be kept to demonstrate this.