Tax Saving Notebook

港台中产 · 2025-12-05

Salaries Tax Calculator 2026 Outlook: Predicting Personal Allowance Changes and Planning Ahead

The Hong Kong Inland Revenue Department (IRD) published the 2025-26 Budget proposals on 26 February 2025, confirming a one-off reduction of salaries tax and tax under personal assessment for the year of assessment 2024/25, capped at HKD 3,000. This measure, while providing immediate relief for the current filing season, offers no clarity on the structural trajectory of personal allowances beyond the next tax year. For Hong Kong’s 30-55 year old middle-class professionals and self-employed individuals, the real question is not the quantum of next year’s rebate, but the sustainability of the allowance framework itself. With the government projecting a consolidated deficit of HKD 100.1 billion for 2025-26 and fiscal reserves expected to fall below HKD 600 billion by March 2026, the pressure to broaden the tax base is intensifying. The 2025-26 Budget explicitly flagged a review of “tax concessions and allowances” as part of the broader fiscal consolidation strategy. For a jurisdiction where salaries tax revenue accounts for approximately 22% of total government revenue (2024-25 Revised Estimates), any adjustment to personal allowances directly impacts disposable income for the territory’s core taxpayers. This article examines the structural forces shaping the 2026-27 salaries tax regime, models likely allowance scenarios based on historical patterns and fiscal necessity, and provides a forward-looking planning framework for the mid-career professional.

The Fiscal Context: Why Allowances Are Under Scrutiny

The Deficit Trajectory and Tax Base Politics

Hong Kong’s fiscal position has deteriorated sharply since the pandemic. The 2025-26 Budget estimates a consolidated deficit of HKD 100.1 billion, following deficits of HKD 101.6 billion (2024-25 Revised Estimate) and HKD 64.6 billion (2023-24 Actual). The government’s fiscal reserves are projected to decline from HKD 734.6 billion at 31 March 2024 to HKD 595.2 billion by 31 March 2026 — a drop of nearly 19% in two fiscal years. The Financial Secretary, Mr. Paul Chan, stated in the Budget speech that the government would “strive to achieve fiscal consolidation in the coming years” and that “a review of various tax concessions and allowances will be conducted.”

The structural problem is well-documented: Hong Kong’s narrow tax base means that a small cohort of taxpayers shoulders the bulk of salaries tax revenue. According to the IRD’s 2023-24 Annual Report, only 1.87 million out of a working population of approximately 3.8 million paid salaries tax. Of those, the top 10% of taxpayers contributed roughly 60% of total salaries tax revenue. This concentration makes personal allowance adjustments a highly sensitive political and fiscal lever — a small reduction in allowances can generate meaningful revenue without triggering the political backlash of a rate increase.

The Allowance Freeze Pattern (2014-2025)

The IRD has not increased the basic personal allowance since the 2021-22 tax year, when it was raised to HKD 132,000. Prior to that, the allowance was increased in 2018-19 (from HKD 132,000) and 2014-15 (from HKD 120,000). The marginal tax rate bands have also remained static since 2018-19, with the standard rate applying at 15% on net chargeable income exceeding HKD 5,000,000. Historically, allowance increases have occurred approximately every 3-5 years, typically in response to inflation and political cycles. The current freeze — now entering its fifth year — is the longest since the 2003-2008 period, which coincided with the post-SARS deficit.

The 2025-26 Budget did not propose any increase to the basic allowance. Given the fiscal deficit trajectory, a freeze for the 2026-27 tax year appears the most probable outcome. A reduction, while fiscally logical, would be politically challenging for a government facing a Legislative Council election in late 2025.

Modelling the 2026-27 Allowance Scenarios

Scenario A: Status Quo Freeze (Probability: 60%)

Under this scenario, the basic personal allowance remains at HKD 132,000 for the year of assessment 2026-27. The married person’s allowance stays at HKD 264,000. The single parent allowance remains at HKD 132,000. The child allowance per child (first to ninth) remains at HKD 130,000. The dependent parent/grandparent allowance (aged 60 or above, residing with taxpayer) remains at HKD 50,000. The progressive tax rates (2%, 6%, 10%, 14%, 17%) and the standard rate threshold (HKD 5,000,000) remain unchanged.

For a mid-career professional earning HKD 600,000 per annum with no dependents, the salaries tax liability under Scenario A would be approximately HKD 36,800 (assuming no other deductions). This represents an effective tax rate of 6.1% on gross income — low by international standards, but static in nominal terms for five consecutive years. The real tax burden, adjusted for cumulative inflation of approximately 8-10% since 2021-22, has already increased.

Scenario B: Targeted Reduction in Allowances (Probability: 30%)

The government may opt for a surgical reduction in specific allowances rather than a blanket cut to the basic allowance. The dependent parent/grandparent allowance, the child allowance, and the single parent allowance are politically sensitive but represent significant revenue leakage. The IRD’s 2023-24 Annual Report indicates that child allowance claims totalled HKD 12.8 billion, while dependent parent/grandparent allowance claims totalled HKD 9.2 billion.

A plausible scenario: reducing the child allowance from HKD 130,000 to HKD 120,000 per child, and reducing the dependent parent allowance (residing with taxpayer) from HKD 50,000 to HKD 45,000. This would generate an estimated HKD 1.5-2.0 billion in additional revenue annually, based on the number of claimants. The basic allowance would remain frozen. This approach allows the government to claim it is “targeting relief” while broadening the base.

Scenario C: Introduction of a Hard Cap on Total Allowances (Probability: 10%)

A more aggressive reform would introduce a cap on the total amount of personal allowances a single taxpayer can claim. This is the approach used in jurisdictions like Singapore, where the total personal relief cap is SGD 80,000 per year of assessment. For Hong Kong, a cap of HKD 300,000 or HKD 400,000 would primarily affect high-income taxpayers with multiple dependents, large MPF voluntary contributions, and significant charitable donations.

The IRD does not currently publish data on the distribution of total allowance claims, but a cap would disproportionately impact taxpayers in the top 10% income bracket. This scenario is less likely in the short term due to the complexity of drafting and the potential for legal challenge under the Inland Revenue Ordinance (Cap. 112), but it remains a medium-term possibility if fiscal consolidation targets are not met.

Planning Strategies for 2026-27 and Beyond

Maximise MPF Voluntary Contributions Before Any Cap

The MPF mandatory contribution cap for employees is HKD 18,000 per annum (5% of relevant income, capped at HKD 300,000 per month). Voluntary contributions to an MPF scheme are tax-deductible up to a total of HKD 60,000 per annum (combined mandatory and voluntary). For the self-employed, the cap is HKD 60,000 per annum.

If the government introduces a cap on total allowances, the MPF deduction is a prime candidate for limitation, as it is one of the largest single deduction items after the basic allowance. For a self-employed professional earning HKD 800,000, maximising the HKD 60,000 MPF voluntary contribution in the current year locks in the deduction at the current cap. Any future reduction in the cap would apply only to contributions made after the legislative amendment, preserving the deductibility of existing contributions.

Review Dependent Status Elections

Taxpayers with elderly parents or children should review their dependent status elections before the 2026-27 year of assessment. The dependent parent/grandparent allowance requires the parent to be ordinarily resident in Hong Kong and aged 60 or above. If the parent is aged 55-59, the allowance is reduced to HKD 25,000 (or HKD 50,000 if residing with the taxpayer).

If the government targets this allowance for reduction, taxpayers should consider whether any parent nearing age 60 could be brought into the allowance regime before the change takes effect. The allowance is claimed on a per-parent basis, so timing matters. Similarly, child allowance claims require the child to be under 18, or aged 18-25 and in full-time education. Taxpayers with children approaching the age limit should ensure all eligible claims are made in the current year.

Consider the Timing of Charitable Donations

Charitable donations of not less than HKD 100 to an approved charitable institution are deductible up to 35% of assessable income. This is one of the few deductions not subject to a specific monetary cap. If the government introduces a total allowance cap, charitable donations could be indirectly limited if the cap is expressed as a percentage of income or as a fixed monetary amount.

For high-income taxpayers, accelerating charitable donations into the current year (2025-26) may be prudent if a cap is anticipated. The deduction is available in the year of donation, so a donation made in March 2026 would be deductible in the 2025-26 return, filed in 2026.

The Legislative Timeline and What to Watch

The Budget Cycle and Legislative Process

The Financial Secretary delivers the Budget in late February each year. The Inland Revenue (Amendment) Bill is typically gazetted in March or April, passed by the Legislative Council in May or June, and published in the Government Gazette in June or July. The amendments apply to the year of assessment commencing 1 April of the same year.

For the 2026-27 year of assessment, the Budget will be delivered in February 2026. Any allowance changes will be announced at that time. Taxpayers should watch for the Budget speech and the accompanying Budget estimates for specific references to “personal allowances,” “tax concessions,” and “fiscal consolidation.” The LegCo Finance Committee’s deliberations in March-April 2026 will provide further detail.

Key Indicators to Monitor

Three indicators will signal the direction of allowance policy:

  1. The 2025-26 fiscal outturn. If the deficit for 2025-26 exceeds the Budget estimate of HKD 100.1 billion, the pressure for allowance cuts will intensify. The outturn is typically published in the October-December period of the following year.

  2. The government’s medium-range fiscal projections. The Budget includes a five-year fiscal projection. If the government’s own projections show structural deficits continuing beyond 2027-28, allowance reform becomes more likely.

  3. LegCo election results (late 2025). The composition of the Legislative Council will influence the political feasibility of allowance cuts. A government with a strong majority may be more willing to push through unpopular measures.

Actionable Takeaways

  1. Assume a freeze on the basic personal allowance at HKD 132,000 for 2026-27 and plan your cash flow accordingly — do not budget for an increase.
  2. Maximise your MPF voluntary contribution of HKD 60,000 per annum before any potential cap is introduced, as this is the most likely deduction to be limited.
  3. Review your dependent parent and child allowance claims now to ensure all eligible dependents are captured in the current year, before any targeted reduction takes effect.
  4. Accelerate charitable donations into the 2025-26 tax year if you are a high-income taxpayer, as a total allowance cap could reduce the benefit of future donations.
  5. Monitor the 2025-26 fiscal outturn (expected late 2026) as the single most reliable leading indicator of allowance policy direction for 2027-28 and beyond.

本文不構成稅務建議。涉及個人稅務情況請諮詢持牌會計師或稅務師。 / This does not constitute tax advice. Consult a licensed CPA or tax advisor for your specific situation.