Common fallacies of capital gains tax: Determining the value of the property based on the market value at the time of departure from Hong Kong

Among all the tax terms in the UK, one that makes the most people in Hong Kong blush is probably the capital gain tax (Captial gain tax). When it comes to the cost of many Hong Kong people moving to the UK, the chances are that they will sell their properties in Hong Kong, earn millions or even tens of millions of dollars in cash, and then move their families to the UK and start a new chapter in their lives. However, if you are not prepared for capital gain tax before moving to the UK or handle it improperly, the cost of moving to the UK will be reduced, because the returns obtained after selling the property may need to be taxed, and a big fallacy derived from this is that there are many Hong Kong people mistakenly believe that the UK will use the current market value of the property when it is sold. This idea is completely wrong.

Calculate capital gain tax in three steps

The method for calculating capital gain tax in the UK is very straightforward. It is divided into three steps. The first step is to calculate the gain (Gain), which is to subtract the purchase price from the selling price of the ownership holder, and the profit generated is used as the calculation , assuming that Mr. Chen (pseudonym) bought a property in Hong Kong for $4 million  in 2017, then immigrated to the UK in 2021, and sold the property for more than $6 million in 2023, deducting attorney fees, brokerage commissions, etc., is This transaction generated a profit of at least $2 million. Since Mr. Chen was already a British tax resident when he sold the property, theoretically, the profit of $2 million is subject to tax, that is, capital gain tax.

The second step is to calculate Taxable Gain, that is, within the same tax year, Mr. Chen may have other transactions that need to be included in the calculation of capital gains tax. For example, Mr. Chen sold a certain stock in that year and generated a profit of $100,000. This $100,000 also It must be calculated together with the $2 million gained from selling the property.

As for how much tax he needs to pay on these profits, that is the third step, calculating capital gains tax. This part depends on many factors. For example, you need to know which tax bracket Mr. Chen belongs to in the UK in order to calculate how much tax he has to pay. It may be 18% or 28% of the profit, but in any case, it is difficult to be considered a tax bracket. Small number. Since the circumstances of each case may vary greatly, the best way is to consult a professional accountant.

Common Big Fallacy: Using the Market Price of the Property Sold as a Calculation Factor

Many Hong Kong people mistakenly believe that the British capital gains tax can be calculated based on the current market value of the property sold. For example, Mr. Chen sold the property for $6 million in 2023. Before selling the property, he first sought a valuation from a valuation firm. The valuation agency estimated that the market value was $6.5 million. Mr. Chen sold it for $6 million, which was a loss of $500,000 based on the market value. Therefore, no tax was required. This idea is wrong because the British government does not consider the market value of the property at that time. The scheme does not exist in the UK.

Be careful not to be confused with the Canadian tax system

Why does this fallacy occur? The author estimates that the reason may be related to Canada’s immigration policy. Since Canada calculates capital gains tax based on the "market value at the time" when the property holder immigrates to Canada, and does not take into account the initial purchase price, the gap between the two can naturally be large.

The best way to effectively avoid paying expensive capital gains tax is to sell the property before moving to the UK and consult a professional to do a Clean Captial, then you can have peace of mind.