The government launched three types of tax-deductible products, including the “Voluntary Health Insurance Scheme” (VHIS), “Tax Deductible MPF Voluntary Contributions” (TVC) and “Qualified Deferred Annuity Plans” (QDAP). These three products are not only tax-deductible, but also allow tax deductions to be shared within family members, such as your spouse. So what is the best tax deduction arrangement for a married couple to save the maximum amount of tax?
Buy VHIS for your spouse to enjoy tax deductions
The most special feature of VHIS is that taxpayers can purchase VHIS for himself/herself and any eligible dependant(s) (also called “specified relatives”) and claim tax deductions for “all VHIS policies” against his/her tax rate. The tax-deductible amount of each VHIS policy is capped at HK$8,000 annually.
If the incomes and standard tax rates of a married couple are different, the individual with the higher tax rate can purchase VHIS policies and claim tax deductions for both of them in his/her own capacity. For instance, if the husband having a higher tax rate purchases VHIS for his wife, he can claim tax deductions which his wife is entitled to by including the premium paid for her VHIS as his own tax-deductible amount. As a result, the couple’s overall tax deductions will be higher.
Tax deductions for TVC and QDAP must be aggregated
“Tax deductible MPF voluntary contributions” (TVC) and “Qualified Deferred Annuity Plans” (QDAP) are eligible for tax deductions. The maximum aggregated tax-deductible amount is HK$60,000 per taxpayer annually. At present, the government has designated TVC and QDAP as the same category for calculating tax deductions which taxpayers should pay close attention to. In other words, even if you have purchased both TVC and QDAP, the maximum aggregated tax-deductible amount is still HK$60,000.
Maximum HK$120,000 in total tax deductions for QDAP by a married couple
For instance, the husband purchases QDAP with a basic premium of HK$180,000 and claims the maximum tax-deductible amount of HK$60,000. As long as both the husband and wife have chargeable income, the wife can claim tax deductions for her husband’s remaining QDAP premium, whether she has or not purchased QDAP. The maximum tax deduction for each of them and their total maximum tax-deductible amount will be HK$60,000 and HK$120,000 respectively.
Tax savings reach 70% by married couples “teaming up”
| Table 1 Tax deduction example of a married couple who did not purchase VHIS / TVC / QDAP |
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| Annual Income | Husband： $300,000 | Wife：$240,000 |
| TVC／QDAP | 0 | 0 |
| VHIS （Husband’s plan) | 0 | 0 |
| VHIS （Wife’s plan) | 0 | 0 |
| Total Deductions | 0 | 0 |
| Basic Allowances | $132,000 | $132,000 |
| Net Chargeable Income | $168,000 | $108,000 |
| Tax Payable | $11,520 | $4,800 |
| Total Tax Payable | $16,320 | |
What happens in reality? Let’s try to calculate an example according to the most simplified tax returns in “Table 1”. The annual incomes of the married couple are HK$300,000 and HK$240,000 respectively where they elect for separate tax assessments and eligible for a basic tax allowance but without other allowances and deductions. According to the government’s tax calculator, the husband and wife will have to pay taxes of at least HK$11,520 and HK$4,800 respectively in the year of 2020/21, with a total tax payable of HK$16,320.
| Table 2 Tax deduction example of a married couple who has purchased VHIS / TVC / QDAP |
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| Annual Income | Husband：$300,000 | Wife：$240,000 |
| TVC／QDAP | $60,000** | $60,000** |
| VHIS (Husband’s plan*) | $9,755 | $0 |
| VHIS （Wife’s plan*) | $10,749 | $0 |
| Total Deductions | $76,000 | $60,000 |
| Basic Allowances | $132,000 | $132,000 |
| Net Chargeable Income | $92,000 | $48,000 |
| Tax Payable | $3,520 | $960 |
| Total Tax Payable ： | $4,480 | |
| *Premium as set by “Manulife First VHIS Flexi Plan: Ward + Major Medical Plus” Data according to a 50-year-old policyholder ** The maximum aggregated tax-deductible amount for TVC / QDAP is $60,000 per taxpayer |
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The married couple may also increase their tax deductions by investing in VHIS, TVC or pay premiums for QDAP. According to the example in “Table 2” above, the individual with a higher tax rate could purchase VHIS products such as “Manulife First VHIS Flexi Plan: Ward + Major Medical Plus” for his/her spouse. The annual premiums for a 50-year-old male and female are HK$9,755 and HK$10,749, respectively, which may facilitate the couple to claim the “maximum” tax deduction of HK$8,000 per insured person for VHIS.
The couple may also consider products like ManuLeisure Deferred Annuity from Manulife by utilizing the name of husband and wife or open TVC accounts under the Manulife Global Select (MPF) Scheme separately. This can reduce their taxes payable to HK$3,520 and HK$960 respectively, with a total of HK$4,480. In comparison with the original total taxes payable of HK$16,320, the couple can save up to 70% in tax!
| Table 3 Tax deduction example of a married couple who has purchased VHIS / TVC / QDAP |
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| Annual Income | Husband：$300,000 | Wife：$240,000 |
| TVC／QDAP | $60,000** | $60,000** |
| VHIS (Husband’s plan*) | $7,130 | 0 |
| VHIS （Wife’s plan*) | $7,130 | 0 |
| Total Deductions | $74,260 | $60,000 |
| Basic Allowances | $132,000 | $132,000 |
| Net Chargeable Income | $93,740 | $48,000 |
| Tax Payable | $3,624 | $960 |
| Total Tax Payable ： | $4,584 | |
| *Premium as set by “Bupa MyFlexi VHIS Plan：Standard” Data according to a 50-year-old policyholder ** The maximum aggregated tax-deductible amount for TVC / QDAP is $60,000 per taxpayer |
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As for the case of “Table 3”, the couple’s total tax-deductible amount will be relatively lower if they purchase Bupa MyFlexi VHIS with a lower premium even if they claim the maximum aggregated tax-deductible amount of HK$60,000 for TVC or QDAP.
Therefore, for a married couple with high tax rates and ample incomes, they could consider purchasing one of the VHIS Flexi Plans available in the market. After all of the tax deductions, the tax savings may be even higher than the above example. If the spouses purchase VHIS for their parents or children, they can even claim further tax deductions.
A married couple may also consider “the trio of tax deductions” and make flexible arrangements for tax deductions according to their actual situation. In this way, they will not only receive healthcare protection and achieve long term financial returns, but can also create better tax arrangements.
(The results of calculations based on the information provided in the above cases and all other information are for reference only. The final and actual tax savings and the tax payable will be determined by the Inland Revenue Department.)
Apply for Manulife designated plan(s) to enjoy premium discount*.
*Subject to terms and conditions. Please check for more product and offer details from the product/promotion leaflet on the website.
Want to learn more about the government’s VHIS? Read our VHIS Guide!
Chinese version
夫婦終極扣稅大法=自願醫保+合資格延期年金保單+強積金可扣稅自願性供款