Property tax on rental income in Hong Kong

If you receive rental income from a property you own in Hong Kong, you are liable to pay Property Tax. This is charged at a standard rate of 15% for the year of assessment 2025/26 (source: Inland Revenue Department, effective for that year). The tax is levied on the net assessable value of the rent, not the gross rent you collect. The mechanism works as follows: you start with the actual rent received (the assessable value), then subtract any government rates you paid as the owner, and then deduct a flat 20% statutory allowance for repairs and outgoings. The resulting figure is the net assessable value, and you pay 15% on that. Critically, the 20% allowance is automatic — you get it regardless of what you actually spent on repairs. If your actual repair costs exceed 20% of the rent, you cannot claim the excess. If they are lower, you still get the full 20% deduction. This is a key feature: the allowance is not a claim; it is built into the calculation.

How Property Tax is calculated

The formula set by the Inland Revenue Department (IRD) is:

• Assessable value = total rent received (including non-refundable deposits and any service charges paid by the tenant).
• Less: Rates paid by the owner — only the portion of rates you paid as the property owner, not what the tenant reimbursed. The tenant’s share is part of your rental income.
• Less: Statutory allowance = 20% of the figure after deducting rates. This is an automatic flat percentage, not based on receipts.
• Equals: Net assessable value.
• Property Tax payable = Net assessable value × 15% (standard rate for 2025/26).

Example (hypothetical numbers):
You receive rent of HK$360,000 in a year. You paid HK$12,000 in government rates as the owner. The calculation is:

• Assessable value: HK$360,000
• Less rates: HK$12,000 → HK$348,000
• Less 20% allowance (HK$69,600) → Net assessable value = HK$278,400
• Property Tax at 15% = HK$41,760

This is straightforward: you owe HK$41,760, regardless of what you spent on repairs (even if you spent nothing).

What counts as rental income

The IRD defines assessable value broadly. It includes:

• Rent proper (the monthly payment).
• Non-refundable deposits (e.g., a "key money" deposit that becomes income if forfeited).
• Service charges or management fees paid by the tenant to you (not to the building management).
• Any other consideration for the right to use the property.

Refundable deposits (e.g., a standard two-month rental deposit) are not income until they become non-refundable. If you deduct a repair cost from a deposit, that deducted amount becomes rent.

The 20% allowance: what it covers (and what it does not)

The 20% statutory allowance is intended to cover all repairs, outgoings, and expenses related to the property. The IRD states explicitly that this is a flat figure — you cannot claim actual repair costs above 20%, nor can you claim any other expenses (such as management fees, mortgage interest, or insurance) as a separate deduction. The only deductions allowed are:

• Rates paid by the owner.
• The 20% allowance.

That is it. Mortgage interest is not deductible in calculating Property Tax. This is a key point: Property Tax is a gross-receipts-based tax with a standard deduction, not a profit-based tax.

When Property Tax is not the whole story: Personal Assessment election

If you own the property in your own name (not through a company), you have the option to elect for Personal Assessment under the Inland Revenue Ordinance. This is not a separate tax but a method of calculating your total tax bill across all income sources (salary, business profits, rental income, etc.). Under Personal Assessment, your net rental income (after deducting actual expenses, including mortgage interest) is added to your other income and taxed at progressive rates, with allowances. This can produce a lower bill than paying Property Tax separately.

When does Personal Assessment help?
The main scenario is where you have mortgage interest on the rented property. Because Property Tax does not allow a mortgage interest deduction, but Personal Assessment does, electing this option can reduce your total tax. Specifically:

• Under Property Tax, you pay 15% on (rent – rates – 20% allowance).
• Under Personal Assessment, you calculate net rental income as: gross rent – rates (paid by you) – actual repair costs – other expenses (management fees, insurance, etc.) – mortgage interest.
• This net rental income is then added to your other income. If your marginal tax rate (progressive) is lower than 15%, or if the deductions reduce your taxable income significantly, Personal Assessment may be cheaper.

Caveat: Personal Assessment cannot be used to create a loss that offsets other income. If your rental deductions exceed rental income, the excess is not deductible against salary or business profits. It is simply lost.

Example (hypothetical):
Suppose your rental income is HK$360,000, rates paid HK$12,000, mortgage interest HK$100,000, and actual repairs HK$30,000. Under Property Tax, you pay 15% on (HK$360,000 – HK$12,000 – 20% of HK$348,000) = HK$41,760. Under Personal Assessment, your net rental income is HK$360,000 – HK$12,000 – HK$30,000 – HK$100,000 = HK$218,000. If your other income brings you into a 10% marginal bracket, the tax on that HK$218,000 would be HK$21,800 — much lower. However, you must calculate your total tax bill under Personal Assessment using the progressive rates and allowances. The IRD provides a calculator on its website (see below).

Filing obligations and record-keeping

If you have rental income, you must report it to the IRD. The process:

• Property Tax return (IR58): The IRD issues these to owners of rental properties. You must complete and return it within the specified period (usually one month from the issue date). If you have multiple properties, each property gets its own return.
• Annual tax return (BIR60): If you also have salary or business income, you report rental income in your annual tax return. The IRD then assesses Property Tax separately or, if you elect Personal Assessment, combines it.
• Election for Personal Assessment: You must make this election in writing in your tax return (BIR60) or separately. The IRD will then compute your tax under both methods and charge the lower amount (though the election is not automatic; you must apply).

Record-keeping: Keep all records for at least 7 years after the end of the year of assessment. This includes tenancy agreements, rent receipts, rates demands, proof of mortgage interest paid, and receipts for repairs. The IRD can request these. If you cannot provide them, the tax assessment may be based on the IRD’s estimate.

What to check or do next

Before filing, confirm the current standard rate and any rule changes. The information here is based on the IRD’s publications as of 11 September 2026. Verify the latest figures and guidance directly with the Inland Revenue Department (IRD) — specifically, check the stamp duty rates (which are separate from Property Tax) and the Property Tax rates at gov.hk Property Tax page. Also consult IRD Pamphlet 54E for detailed rules.

Next steps:

• Calculate your Property Tax liability using the formula above.
• If you have mortgage interest, compare the total tax under Personal Assessment using the IRD’s online calculator or consult a tax professional.
• File your return on time. Late filing attracts penalties.
• Keep all supporting documents for seven years.

This page is part of the broader guide ‘The cost of owning property in Hong Kong’. For related topics (stamp duty, rates, government charges), see the other sections of that guide.