Understanding the Tax Implications of Becoming a UK Resident While Still Owning a Property in Hong Kong

The number of Hong Kong residents applying for British National (Overseas) visas passed 200,000 by mid-2025, according to the UK Home Office. Each applicant who becomes a UK tax resident faces a specific legal question: what happens to the Hong Kong property they still own. The UK’s statutory residence test (SRT) under the Finance Act 2013 determines residency status based on days present in the UK. A separate set of rules governs the taxation of foreign income, including rental income from a Hong Kong flat. The UK’s remittance basis of taxation applies to individuals who are domiciled outside the UK but resident there. For a Hong Kong property owner, the critical distinction is between income arising in Hong Kong and income remitted to the UK. The UK’s non-domiciled regime underwent significant reform effective 6 April 2025, replacing the remittance basis with a new foreign income and gains (FIG) regime. This article explains the current rules as they apply to a Hong Kong resident who becomes a UK tax resident while retaining ownership of Hong Kong property.

The Statutory Residence Test and Your Hong Kong Property

The UK’s statutory residence test is the starting point for any tax analysis. The test is set out in Schedule 45 of the Finance Act 2013. It operates on a day-count basis with three tiers: the automatic overseas test, the automatic UK test, and the sufficient ties test. A person who spends 183 days or more in the UK in a tax year is automatically UK resident. A person who spends fewer than 16 days in the UK is automatically non-resident, unless they have been UK resident in the previous three tax years, in which case the threshold drops to 46 days.

Step 1: Counting Days for the Automatic Tests

The automatic overseas test is the first filter. A person who spends fewer than 16 days in the UK in a tax year and was not UK resident in any of the previous three tax years passes this test. A person who was UK resident in one or more of the previous three tax years must spend fewer than 46 days in the UK to pass the automatic overseas test. These thresholds apply to the tax year running from 6 April to the following 5 April.

For a Hong Kong property owner who moves to the UK under the BNO visa route, the typical pattern involves spending more than 183 days in the UK in the first tax year. That person automatically becomes UK resident from day one of that tax year. The Hong Kong property is then classified as overseas property for UK tax purposes.

Step 2: The Sufficient Ties Test for Borderline Cases

A person who does not pass either automatic test must apply the sufficient ties test. The UK tax authority, HMRC, recognises three types of ties: family tie, accommodation tie, work tie, and in some cases a 90-day tie. An accommodation tie exists if the person has a place of accommodation in the UK available for their use for at least 91 days in the tax year and they spend at least one night there. A Hong Kong resident who rents a flat in London for six months would trigger this tie.

The number of ties required to become resident depends on how many days the person spends in the UK. For example, a person who spends 120 days in the UK and has three ties is resident. A person who spends 90 days and has four ties is also resident. The HMRC manual RDR3 provides detailed guidance on calculating ties.

Taxation of Rental Income from Hong Kong Property

Once a person is UK resident, their worldwide income is subject to UK income tax. The treatment of rental income from a Hong Kong property depends on whether the person claims the remittance basis or is taxed on the arising basis.

The Arising Basis and the Remittance Basis

The arising basis taxes all income in the tax year it arises, regardless of where the income is received. A UK resident who is domiciled in Hong Kong under UK common law rules may claim the remittance basis. The remittance basis taxes only income that is brought into, or received in, the UK. Rental income that remains in a Hong Kong bank account and is not used for UK purposes is not taxed under the remittance basis.

The remittance basis is not automatic. A claim must be made on the self-assessment tax return. The claim carries a cost: the remittance basis charge (RBC) applies if the person has been UK resident for at least 7 out of the previous 9 tax years. The RBC is £30,000 for years 7 to 12 of residence and £60,000 for years 12 or more of residence. A person who does not claim the remittance basis is taxed on the arising basis on all worldwide rental income.

The 2025 Reforms: Abolition of the Remittance Basis

The UK government announced in the Spring Budget 2024 that the remittance basis would be abolished for new arrivals from 6 April 2025. The Finance Act 2025 implements this change. From 6 April 2025, new UK residents who have not been UK resident in the previous 10 tax years are eligible for a four-year foreign income and gains (FIG) regime. Under the FIG regime, foreign income and gains arising in the first four years of UK residence are exempt from UK tax, provided the income is not brought into the UK.

This change affects Hong Kong property owners who become UK resident on or after 6 April 2025. Rental income from the Hong Kong property arising in the first four tax years of UK residence is exempt from UK tax, as long as the income is not remitted to the UK. After the four-year period, the income is taxed on the arising basis at the individual’s marginal rate of UK income tax.

Deductible Expenses and Allowances

UK tax law allows a deduction for expenses incurred wholly and exclusively for the purpose of generating rental income. For a Hong Kong property, these expenses include agent fees, management charges, repairs, and insurance. Mortgage interest is not deductible as an expense under UK rules since 6 April 2020. Instead, a tax credit of 20% of the mortgage interest is available.

The Hong Kong property owner must convert rental income from Hong Kong dollars to pounds sterling using the spot rate on the date the income arises. HMRC publishes annual exchange rates for this purpose. The owner must also declare the rental income on the UK self-assessment tax return, even if no UK tax is due under the FIG regime.

Capital Gains Tax on Disposal of Hong Kong Property

The UK charges capital gains tax (CGT) on disposals of assets by UK residents. The tax applies to worldwide assets, including Hong Kong property. The rate of CGT depends on the individual’s income tax band. For the 2025-26 tax year, the basic rate is 18% for residential property and 10% for other assets. The higher rate is 24% for residential property and 20% for other assets.

Principal Private Residence Relief

Principal private residence (PPR) relief exempts gains on the disposal of a person’s main home from CGT. The relief applies to one property only. A Hong Kong property owner who moves to the UK and retains the Hong Kong property must decide which property is their main residence for UK tax purposes. The decision is based on factual occupation, not merely the owner’s intention.

If the Hong Kong property was the owner’s main home before moving to the UK, and the owner continues to occupy it when visiting Hong Kong, the property may qualify for PPR relief during the period of actual occupation. The final nine months of ownership are always treated as deemed occupation, even if the property is not actually occupied during that period. Gains attributable to periods of non-occupation are chargeable to CGT.

The 2025 Reforms and CGT on Overseas Property

Under the FIG regime introduced on 6 April 2025, gains arising on overseas property in the first four years of UK residence are exempt from CGT, provided the gain is not remitted to the UK. This exemption applies to disposals made during the four-year window. A disposal made after the four-year period is subject to CGT on the arising basis.

The gain is calculated by reference to the original cost of the property. The exchange rate for converting the cost from Hong Kong dollars to pounds sterling is the rate prevailing on the date of acquisition. The gain is the difference between the net sale proceeds and the cost, both converted at their respective dates. Indexation allowance for inflation is not available for individuals.

Inheritance Tax Considerations

UK inheritance tax (IHT) applies to the estate of a person who is domiciled in the UK. Domicile under UK law is distinct from residence. A person acquires a domicile of origin at birth, usually the domicile of their father. A domicile of choice can be acquired by residing in a country with the intention of remaining there permanently.

Deemed Domicile Rules

The UK deems a person to be domiciled in the UK for IHT purposes if they have been resident in the UK for at least 15 of the previous 20 tax years. This rule applies regardless of the person’s domicile of origin. A Hong Kong property owner who becomes UK resident in 2025 will be deemed UK domiciled for IHT purposes in the 2040-41 tax year, assuming continuous residence.

Once deemed domiciled, the person’s worldwide assets, including the Hong Kong property, are subject to UK IHT at 40% on the value above the nil-rate band (currently £325,000). The residence nil-rate band adds an additional £175,000 for a main home passed to direct descendants. The Hong Kong property may qualify for this band if it is the owner’s main residence at the time of death.

Double Taxation Relief

Hong Kong and the UK have a double taxation agreement (DTA) covering inheritance tax. The DTA, signed in 2010, provides that immovable property is taxed in the country where the property is situated. This means that the Hong Kong property is primarily subject to Hong Kong estate duty, not UK IHT. However, the UK may still charge IHT on the value of the property if the deceased was UK domiciled, with a credit for any Hong Kong estate duty paid.

Hong Kong abolished estate duty for deaths occurring on or after 11 February 2006. For a Hong Kong property owner who dies after that date, no Hong Kong estate duty is payable. The UK IHT is therefore chargeable on the full value of the property, subject to the nil-rate bands and any reliefs.

Actionable Takeaways

1. Determine your UK residence status under the statutory residence test before the start of each tax year, using the day-count rules in Schedule 45 Finance Act 2013.
2. Claim the FIG regime on your first UK self-assessment return if you became UK resident on or after 6 April 2025 and were not UK resident in the previous 10 tax years.
3. Keep rental income from your Hong Kong property in a Hong Kong bank account and do not remit it to the UK during the four-year FIG window to preserve the exemption.
4. Consider selling your Hong Kong property within the first four years of UK residence to benefit from the CGT exemption under the FIG regime.
5. Review your domicile status for IHT purposes every year after 10 years of UK residence, as the deemed domicile rule will apply at the 15-year mark.

This does not constitute legal advice. Consult a solicitor for your specific case.