Separate allowances, deductions and the HK$3,000 tax reduction, then estimate 2025/26 salaries tax with one complete worked example.
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THE SHORT VERSION
Allowances normally reflect personal and family circumstances, such as the basic, married person, child or dependent-parent allowance. Deductions relate to eligible expenses or contributions, including mandatory MPF contributions, self-education, domestic rent, home-loan interest, qualifying annuity premiums, tax-deductible voluntary contributions and VHIS premiums. Both are applied before net chargeable income is finalised.
The tax reduction comes later, after tax has been calculated. A 2025/26 liability of HK$1,800 can therefore fall to zero, while a liability of HK$20,000 falls to HK$17,000. It is neither a HK$3,000 cash payment nor another deduction from income.
Progressive rates are 2% on the first HK$50,000, 6% on the next HK$50,000, 10% on the next HK$50,000, 14% on the next HK$50,000 and 17% on the remainder. The alternative standard-rate route applies 15% to the first HK$5 million of net income before allowances and 16% above that level. The lower result is charged.
For 2025/26, the basic allowance is HK$132,000, the married person allowance is HK$264,000 and the allowance for each of the first nine children is HK$130,000. Several figures rise from 2026/27, but filing later in calendar year 2026 does not move a 2025/26 return into the new schedule.
Assume annual employment income of HK$600,000, deductible mandatory MPF contributions of HK$18,000, eligible self-education expenses of HK$20,000 and the HK$132,000 basic allowance. Net chargeable income is HK$600,000 minus HK$18,000, HK$20,000 and HK$132,000, giving HK$430,000.
Progressive tax is HK$16,000 on the first HK$200,000 plus 17% of the remaining HK$230,000, or HK$39,100: HK$55,100 in total. Standard-rate tax on HK$562,000 of net income is HK$84,300, so the lower progressive result applies. After the HK$3,000 reduction, the illustrative final tax is HK$52,100. Housing benefits, other income, additional claims and provisional tax can change the real assessment.
Illustration: 600,000 − 18,000 − 20,000 − 132,000 = HK$430,000 net chargeable income; progressive tax HK$55,100; standard-rate tax HK$84,300; lower result minus HK$3,000 = HK$52,100.
No. A ceiling is only a maximum. You need an eligible expense, contribution or premium and must meet the relevant identity, purpose, period and evidence rules. If eligible spending is lower, only that actual amount can be claimed.
It begins in 2026/27. The 2025/26 basic allowance remains HK$132,000, and figures from two assessment years should never be mixed in one calculation.
Taxpayers normally complete the 2025/26 return in the usual way and IRD applies the reduction on assessment. The reduction affects final tax and is not permission to underpay an issued provisional-tax demand.
Consider it for overseas employment, share awards, employer-provided housing, multiple property or business income streams, spouse allocation, ownership disputes or late claims. A simple calculator may not model those facts correctly.
Start with documents you actually hold, not the largest deduction advertised. Put each eligible amount into the formula, verify it with the official calculator, and use SmartDollar’s tax-planning hub to continue the checklist.
Figures, eligibility and product terms can change. These primary sources underpin this guide; check the latest version before acting.
IRD: Allowances, deductions and tax rate table
IRD: 2026/27 Budget tax measures and 2025/26 reduction
IRD: A brief guide to taxes administered in Hong Kong 2025/26
| Item | 2025/26 figure | Common trap |
|---|---|---|
| Basic allowance | HK$132,000 | HK$145,000 starts in 2026/27 |
| Mandatory MPF deduction | Up to HK$18,000 | Not every voluntary contribution qualifies |
| TVC + qualifying annuity | Combined cap HK$60,000 | Not HK$60,000 each |
| VHIS premium deduction | Up to HK$8,000 per insured person | Policy and insured person must qualify |
| Rent / home-loan interest | Basic cap HK$100,000 each | Eligibility, years and extra limits differ |
| Tax reduction | 100%, capped at HK$3,000 | Reduces final assessment, not provisional tax directly |
For general information, not personalised financial advice. Examples are illustrative, not current product offers. Check the provider’s latest terms before applying.
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