1. Hong Kong: Estate Duty Abolished in 2006

Hong Kong abolished estate duty on 11 February 2006 under the Revenue (Abolition of Estate Duty) Ordinance 2005. Before abolition, estate duty was charged at progressive rates of up to 15% on Hong Kong-situated assets of deceased persons.

The abolition was motivated by a desire to:

• Attract more foreign investment and wealth management business to Hong Kong
• Promote the development of the asset management industry
• Boost Hong Kong's competitiveness as an international financial centre
• Simplify estate administration (previously, a Certificate of Exemption from Estate Duty was required before a grant could be issued)

Key Facts

• No estate duty is payable on the estates of persons dying on or after 11 February 2006.
• If the deceased died before 11 February 2006, estate duty may still be payable under the old rules.
• Hong Kong's old estate duty was territorial — it only applied to assets situated in Hong Kong, not worldwide assets.
• No Certificate of Exemption from Estate Duty is required for deaths on or after the abolition date.

2. Why Hong Kong Families Should Still Care About Estate Tax

Despite Hong Kong's tax-free position, estate and inheritance taxes remain a major concern for many Hong Kong families because:

• Overseas property: Many Hong Kong families own property in the UK, Australia, Canada, Japan, or other countries. These properties may be subject to estate or inheritance tax in those jurisdictions.
• Foreign investments: US stocks, UK bonds, and other foreign securities may be subject to estate tax in the country where they are situated or issued.
• Emigrated family members: A Hong Kong parent may leave assets to a child who has emigrated to the UK, Australia, or Canada. The child's new country of residence may tax the inheritance they receive.
• Dual citizenship: US citizens and green card holders are subject to US estate tax on their worldwide assets, regardless of where they live.
• Return to ancestry: Hong Kong residents with Japanese, Korean, or Taiwanese heritage may inherit assets in those countries, triggering local inheritance tax.

3. United Kingdom: Inheritance Tax (40%)

The UK's inheritance tax (IHT) is one of the most significant for Hong Kong families because of the large number of Hong Kong residents who own UK property or have emigrated to the UK.

Key Rates and Thresholds (2025/26)

When Does UK IHT Apply to Hong Kong Families?

• UK-situated assets: UK property, UK bank accounts, and UK shares owned by anyone (regardless of domicile) are subject to UK IHT.
• UK-domiciled individuals: If the deceased was UK-domiciled (or deemed domiciled — resident in the UK for 15 of the past 20 tax years), their worldwide assets are subject to UK IHT.
• Hong Kong resident owning UK property: Only the UK property is subject to IHT. The nil-rate band applies.

The Frozen Thresholds Problem

The nil-rate band has been frozen at £325,000 since 2009 and will remain frozen until at least 2030/31. With property values rising significantly over this period, more and more estates are being caught by IHT — often called "fiscal drag."

4. United States: Estate Tax (40%)

The US estate tax is particularly complex and has dramatically different implications depending on whether the deceased was a US person or a non-resident alien.

US Citizens and Residents

US citizens and permanent residents (green card holders) are taxed on their worldwide assets, regardless of where they live. A US citizen living in Hong Kong is still subject to US estate tax on their global estate.

Non-Resident Aliens (Including Most Hong Kong Residents)

Strategies to Mitigate US Estate Tax

• Hold US stocks through non-US funds or ETFs: A Hong Kong-domiciled ETF that invests in US stocks is generally not considered US-situated property.
• Use non-US holding structures: Holding US real estate through a non-US corporation may reduce estate tax exposure (though this has income tax implications).
• Life insurance: Proceeds of life insurance on a non-resident alien's life are generally not subject to US estate tax.

5. Japan: Inheritance Tax (up to 55%)

Japan has one of the highest inheritance tax rates in the world. This is particularly relevant for Hong Kong families with Japanese heritage or property in Japan.

Tax Rates

Basic Exemption

The basic exemption is ¥30 million + ¥6 million per statutory heir. For example, if there are three statutory heirs, the exemption is ¥30 million + (3 x ¥6 million) = ¥48 million (approximately HK$2.5 million).

The 10-Year Residency Rule

Japan's inheritance tax reach is determined by the residency status of both the deceased and the heir:

• Japanese nationals resident in Japan: Worldwide assets are taxed.
• Foreigners resident in Japan for less than 10 years: Only Japanese-situated assets are taxed.
• Foreigners resident in Japan for 10+ years: Worldwide assets are taxed.
• After leaving Japan: If a person lived in Japan for 10+ years, they remain subject to Japanese inheritance tax on overseas inheritances for 5 years after departure.

6. South Korea: Inheritance Tax (up to 50%)

South Korea's inheritance tax is among the highest globally and has been the subject of significant public debate, particularly after the Samsung founder's death resulted in a tax bill exceeding US$10 billion.

Tax Rates

An additional 20% surcharge applies to the largest shareholder's transfer of shares in a listed or unlisted company, effectively creating a maximum rate of 60%.

Key Exemptions

• Basic deduction: KRW 200 million (approximately HK$1.2 million)
• Spousal deduction: Minimum KRW 500 million, up to the legal inheritance share (maximum KRW 3 billion)
• Family business deduction: Up to KRW 60 billion for qualifying family businesses

7. France: Inheritance Tax (up to 45%)

France levies an inheritance tax (droits de succession) on each individual beneficiary, not on the estate as a whole. The rate depends on the relationship between the deceased and the beneficiary.

Rates for Direct Descendants (Children)

Key Allowances

• Spouse/civil partner (PACS): Completely exempt from inheritance tax
• Children: €100,000 allowance per child
• Siblings: €15,932 allowance
• Unrelated persons: 60% flat rate after a €1,594 allowance

8. Germany: Inheritance Tax (up to 50%)

Germany taxes inheritances based on the relationship between the deceased and the beneficiary, with three tax classes and varying rates.

Tax-Free Allowances

Tax Rates

Rates range from 7% to 50% depending on the tax class and the value of the inheritance:

• Tax Class I (spouse, children, parents): 7% to 30%
• Tax Class II (siblings, nieces/nephews, in-laws): 15% to 43%
• Tax Class III (unrelated persons): 30% to 50%

Germany also allows a family home exemption: the family home can pass to the surviving spouse or children completely tax-free, provided the beneficiary lives in it for at least 10 years and the home does not exceed 200 square metres (for children).

9. Countries with No Estate/Inheritance Tax

Several countries that are popular destinations for Hong Kong emigrants or investors do not levy estate or inheritance tax:

10. Canada: Deemed Disposition (Capital Gains)

Canada does not have an estate or inheritance tax. However, it has a "deemed disposition" rule that can have similar financial impact.

How It Works

At the time of death, the deceased is deemed to have disposed of all their capital assets at fair market value. Any capital gain (the difference between the fair market value at death and the original cost) is subject to capital gains tax on the deceased's final tax return.

Capital Gains Tax Rate

• Only 50% of capital gains are included in income for the first C$250,000 of gains in a year
• For gains above C$250,000, the inclusion rate increases to 66.7%
• The included amount is taxed at the deceased's marginal income tax rate (up to approximately 53% at the highest federal-provincial combined rate)

Example

A Hong Kong family's relative in Canada owned a property bought for C$500,000 that is worth C$1,500,000 at death. The capital gain is C$1,000,000. Under deemed disposition, this gain is triggered on the final tax return, resulting in a significant tax liability — potentially C$250,000 or more, depending on the province and other income.

Key Exemptions

• Principal residence: The primary home is exempt from capital gains tax (no deemed disposition gain)
• Spousal rollover: Assets passing to a surviving spouse can be rolled over at cost, deferring the gain until the surviving spouse dies or sells
• RRSP/RRIF: Registered retirement accounts are deemed disposed of and included in income, unless rolled to a surviving spouse or dependent child

11. Global Comparison Table

The following table summarises the estate and inheritance tax regimes of major jurisdictions relevant to Hong Kong families:

* South Korea: 50% + 20% surcharge for largest shareholders. ** France: 60% for unrelated beneficiaries. *** Canada: Effective rate on capital gains through deemed disposition.

12. Tax Treaties and Double Taxation Relief

When assets are potentially taxable in two jurisdictions, double taxation agreements (DTAs) or tax treaties may provide relief.

Hong Kong's Position

Hong Kong has signed Comprehensive Double Taxation Agreements (CDTAs) with numerous jurisdictions. However, most of these cover income tax only, not estate or inheritance tax. This means:

• There is generally no treaty relief for estate/inheritance tax between Hong Kong and other jurisdictions.
• Since Hong Kong does not impose estate duty, double taxation on the Hong Kong side is not an issue.
• The risk is one-directional: overseas jurisdictions may tax the overseas-situated assets, with no offsetting credit in Hong Kong.

Unilateral Relief

Some jurisdictions offer unilateral relief mechanisms:

• UK: Provides unilateral credit relief for foreign tax paid on the same assets. If estate duty were paid in the deceased's country of domicile, the UK may give credit against UK IHT.
• USA: Has estate tax treaties with several countries (but not Hong Kong). Non-treaty country residents may still claim a proportional unified credit.
• Japan: Allows a foreign tax credit for inheritance tax paid in other countries on the same assets.

13. Planning Strategies for Hong Kong Families

General Principles

Specific Strategies by Jurisdiction

• UK property: Consider joint ownership, trust structures, or corporate holding (noting the Annual Tax on Enveloped Dwellings). Review whether the RNRB applies.
• US stocks: Hold through non-US domiciled ETFs or funds to avoid US estate tax exposure. Avoid holding US stocks directly in a personal name.
• Japanese assets: Be aware of the 10-year residency rule. If leaving Japan, plan the timing carefully to minimise the tail period.
• Canadian assets: Use the spousal rollover to defer deemed disposition gains. Ensure the principal residence exemption is properly claimed.

14. Action Steps