Cross-Border Estate Planning for Hong Kong Expats

The expatriate population in Hong Kong is unusually exposed to cross-border succession risk. A typical profile includes a British or American national resident in Hong Kong on an employment visa, holding an HSBC current account and an MPF balance locally, retaining a flat in London or New York, holding US-listed equities through an offshore broker, and perhaps maintaining family property in Australia. On death, four or five legal systems may have a legitimate interest in those assets. The proposition that “Hong Kong has no estate tax” — while true — is frequently misunderstood as meaning that the testator’s estate carries no fiscal exposure. It does not. This article sets out the analytical framework for estate planning for expatriates in Hong Kong.

Hong Kong’s nil-tax position and what it does not cover

Hong Kong abolished estate duty for deaths occurring on or after 11 February 2006 by virtue of the Revenue (Abolition of Estate Duty) Ordinance 2005, repealing the operative provisions of the Estate Duty Ordinance (Cap. 111). Hong Kong further imposes no inheritance tax, no capital gains tax and no gift tax. For an estate composed exclusively of Hong Kong-situated assets held by a Hong Kong-domiciled testator, the fiscal position on death is effectively neutral.

The difficulty for the expatriate is that the nil-tax treatment is a feature of Hong Kong’s domestic system; it does not insulate the estate from foreign fiscal claims. A foreign jurisdiction may tax the estate either on the basis of the deceased’s domicile (worldwide assets) or on the basis that particular assets are situated within its territory. The practical consequence is that the absence of a Hong Kong estate tax confers no relief at all when the United Kingdom or the United States seeks to impose its own charge on the same death.

Lex situs and lex domicilii — the foundational rules

Choice of law in international succession is, at first instance, governed by two complementary principles. Lex situs — the law of the place where the property is situated — governs the devolution of immovable property. A flat in London is administered under English succession rules irrespective of where the testator lived or which will purports to dispose of it. Lex domicilii— the law of the testator’s domicile at death — governs the devolution of movable property, including bank balances, shares and personal chattels.

Domicile is itself a technical concept distinct from residence. A person acquires a domicile of origin at birth and may displace it by acquiring a domicile of choice, which requires both physical residence in the new jurisdiction and an intention to remain there indefinitely. English domicile in particular is “sticky”: HM Revenue and Customs frequently contends that a person born and educated in the United Kingdom retains English domicile notwithstanding decades of residence in Hong Kong, unless the testator can affirmatively demonstrate that an alternative domicile of choice has been acquired and the English domicile abandoned. The point matters because UK inheritance tax attaches to the worldwide assets of a UK-domiciled (or, under current rules, long-term UK-resident) decedent.

Country-specific exposure

Three jurisdictions account for most of the cross-border estate questions the firm encounters in relation to Hong Kong expatriates.

United Kingdom — inheritance tax. The nil-rate band stands at £325,000, with inheritance tax charged at 40 per cent on the excess. A UK-domiciled (or deemed-domiciled) testator is taxable on worldwide assets, which means that a Hong Kong-resident British expatriate who has not successfully displaced an English domicile may have the entirety of his Hong Kong estate brought into charge. A non-UK-domiciled testator is, by contrast, taxable only on UK-situated assets — typically UK real estate and certain UK-registered shareholdings.

United States — non-resident alien estate tax.For a non-resident alien decedent, the United States imposes federal estate tax on US-situated assets, with an exclusion amount of only USD 60,000 and graduated rates running from 18 to 40 per cent. Critically, “US-situated assets” include shares in US-incorporated corporations regardless of where the certificates or brokerage account are held. A Hong Kong expatriate holding US-listed equities through an offshore broker is squarely within the charging provisions. The executor is required to file Form 706-NA within nine months of death. There is no Hong Kong–US estate tax treaty to mitigate the result.

Australia — capital gains tax on transfer. Australia abolished federal estate duty in 1979. However, capital gains tax may apply on the transfer of Australian assets to a foreign beneficiary, and Australian probate is generally required to deal with Australian-situated immovables and registered interests. A separately admitted Australian will (or a resealed Hong Kong grant where the relevant Australian state permits it) is normally indispensable.

Single international will versus concurrent jurisdictional wills

Two structural approaches are available. The first is a single international will, drafted to comply with the formal requirements of the testator’s primary jurisdiction (usually the domicile), with ancillary grants or resealing procedures invoked to administer assets located elsewhere. Resealing in Hong Kong is available under s. 49 of the Probate and Administration Ordinance (Cap. 10)in respect of grants issued by courts of competent jurisdiction in Commonwealth and certain designated jurisdictions; the procedure and its limits are addressed in the firm’s note on resealing foreign grants.

The second approach is concurrent jurisdictional wills — a separate will executed in each jurisdiction in which the testator holds material assets, each complying with local formalities and dealing only with locally-situated property. The advantage is procedural: administration may proceed in parallel rather than sequentially, with each jurisdiction’s grant issued on its own timetable without waiting for a foreign grant to be obtained and resealed. Concurrent wills also permit substantive provisions to be tailored to local tax and registration regimes.

Coordination considerations

Whichever route is taken, several coordination issues recur. The first is executor selection: a sole executor resident only in Hong Kong may struggle to administer English real estate without local professional support, and conversely a London-based executor cannot conveniently attend the Probate Registry at the High Court Building or deal with HSBC Hong Kong’s release procedures. An appointment of joint executors with a clear delineation of responsibility, or substitution of professional executors for foreign assets, is frequently appropriate.

The second is a current schedule of worldwide assets, kept under review and made accessible to the executors. Cross-border estates routinely fail at the discovery stage rather than the legal stage — US-listed equities held through a Singaporean broker do not appear on Hong Kong bank statements and may be overlooked entirely. The schedule should also identify assets that pass outside the estate by survivorship or beneficiary nomination, including jointly-held accounts (see the firm’s note on joint bank accounts on death), MPF accrued benefits passing under a valid PA-NR nomination, and insurance proceeds with a named beneficiary.

The third is the formal validity of the Hong Kong instrument itself. A will admissible to probate in Hong Kong must comply with the Wills Ordinance (Cap. 30), including the requirements as to writing, signature and attestation by two witnesses. Where the testator’s circumstances are complex, the firm’s wills and testamentary drafting service incorporates a cross-border review at the drafting stage rather than after the will is executed.

Common pitfalls

Three pitfalls recur. First, the assumption that the absence of Hong Kong estate duty eliminates foreign tax exposure — when in fact the foreign charge frequently exceeds anything Hong Kong would have imposed historically. Second, the unintended global revocation clause, which dismantles a carefully structured set of concurrent wills in a single sentence. Third, the failure to refresh the planning when circumstances change: a return to the United Kingdom, the acquisition of a US green card, divorce, remarriage or the birth of a child each materially alter the analysis. Cross- border estate planning is not a one-off exercise; it requires periodic review against both the testator’s circumstances and the fiscal landscape of each relevant jurisdiction.