How Are Hong Kong Personal Allowances Calculated?｜Tax Deductions, Eligible Items and Practical Tips

Allowances and deductions are the two main areas for tax reduction on a Tax Return. Once you understand the differences between them, the applicable amounts and eligibility requirements, and combine this with simple tax planning—such as the “three common tax‑deductible items” and approved charitable donations—you can accumulate meaningful savings and effectively reduce your tax burden.

Through clear and easy-to-follow explanations, this article breaks down the differences between allowances and deductions step by step, and explains the conditions, caps and key points to note when claiming commonly used allowance and deduction items, helping you gain a clear understanding of how much tax you may be able to save.

Deductions vs Allowances: what is the difference?

Although we often refer to them collectively as “tax deductions” in everyday speech, under tax legislation they are in practice divided into two broad categories: “allowances” and “deduction items” (deductions).

• Allowances:
  The IRD will grant (automatically or upon claim) an amount of allowances to support basic living needs and the support of dependants. The IRD will first deduct these allowances from your income before computing your net chargeable income.
• Deductions:
  These can only be claimed after you have actually incurred the relevant expenses, and you will generally need to provide receipts or supporting records.

How do they differ in tax computation?

When computing net chargeable income, the process generally follows these steps:

1. Calculate your total income for the year.
2. Deduct the total amount of allowable deductions.
3. Deduct the applicable personal allowances.
4. Tax payable is then calculated at the applicable tax rate(s).

What allowances are available?

Allowances are intended to support basic living needs and dependants. They are fixed amounts that may be claimed if you meet the eligibility requirements. Common personal allowances include (applies to the 2025/26 year of assessment):

• Basic allowance: HK$132,000
• Married person’s allowance: HK$264,000
• Child Allowance (For each of the 1st to 9th child)
  • HK$130,000 per child
  • An additional HK$130,000 may be claimed for each child for the year of assessment in which the child is born.
     
• Dependent Parent and Dependent Grandparent Allowance (For each dependant)
  • Parent / grandparent aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme:  
    • HK$50,000
       
  • Parent / grandparent aged 55 or above but below 60:
    •  HK$25,000
       
• Single parent allowance: HK$132,000
• Disabled Dependant Allowance (For each dependant): HK$75,000
• Personal Disability Allowance: HK$75,000

How are personal allowances calculated?

For a typical salaried person, if you are single with no children and no dependent parents, you can normally only claim the basic allowance. As your life stage changes—such as getting married, having children or starting to support elderly family members—you may be able to claim additional allowances on top of the basic allowance.

Assumed case A (single, no dependants)

• Annual salary including bonus: HK$400,000.
• Mandatory MPF contributions (5% cap): HK$18,000.
• Only the basic allowance is available.

Calculation steps:

1. Total income: HK$400,000.
2. Deduct MPF contributions: 400,000 – 18,000 = HK$382,000.
3. Deduct basic allowance: 382,000 – 132,000 = HK$250,000.
4. Tax is then computed under the progressive rates, and compared with the standard rate. The lower amount is payable.

Assumed case B (married, with one child)

• Joint assessment for a married couple; total family income for the year: HK$800,000.
• Total MPF deduction: HK$36,000.
• Claim married person’s allowance and one child allowance.

Calculation steps:

1. Total income: HK$800,000.
2. Deduct MPF contributions: 800,000 – 36,000 = HK$764,000.
3. Deduct married person’s allowance and child allowance: 764,000 – 264,000 – 130,000 = HK$370,000.
4. Tax is then computed under the progressive rates, and compared with the standard rate. The lower amount is payable.

What deductions are available?

In addition to allowances, you may reduce your tax by claiming allowable deductions. The table below sets out common categories of deductions and the applicable annual limits:

Category	Description	Annual limit
Mandatory MPF contributions	Mandatory contributions to MPF schemes	HK$18,000
Tax Deductible Voluntary Contributions (TVC) to MPF schemes	Qualifying voluntary MPF contributions	Shares an annual cap of HK$60,000 with “Qualifying Annuity Premiums”
Qualifying Annuity Premiums (QDAP)	Premiums paid for qualifying annuity products	Shares an annual cap of HK$60,000 with “Tax Deductible Voluntary Contributions”
VHIS premiums	Premiums paid under qualifying Voluntary Health Insurance Scheme (VHIS) policies; claimable by number of insured persons	HK$8,000 per insured person; no limit on the number of insured persons
Self-education expenses	Tuition fees for approved courses related to your employment or profession	HK$100,000
Approved charitable donations	Donations to approved charitable institutions	Deductible amount is capped at 35% of total income chargeable to tax
Home loan interest	Mortgage interest on a qualifying self-occupied dwelling	HK$120,000; up to 20 years of assessment for the same property
Domestic rents	Deduction for rent paid for a qualifying dwelling	HK$100,000
Elderly residential care expenses	Fees paid to residential care homes for elderly dependants	HK$100,000 for each eligible elderly person
Assisted reproductive service expenses	Qualifying medical expenses for assisted reproductive services	HK$100,000 per marriage (shared by husband and wife)

Practical tips for saving tax

Tip 1: Allocate family allowances strategically

• If both spouses are working, compare whether “separate taxation” or “joint assessment” results in a lower tax payable, before deciding whether to claim married person’s allowance.
• If a family has children, the couple may first assess both parties’ income and deductible amounts, and then decide whether all child allowances should be claimed by one spouse, so as to enhance the overall tax‑saving effect.
• Where parents or grandparents need to be supported, family members (such as siblings) may also consider letting the higher‑income individual claim the relevant allowance, as this may generate a greater tax benefit at a higher tax band.

Tip 2: Plan deductible spending in advance

Some deductible items also serve financial planning or protection needs. With appropriate planning, you may achieve both tax savings and longer-term financial objectives:

• Qualifying Annuity Premiums and Tax Deductible MPF Voluntary Contributions:
  If you are in a higher tax band, increasing the relevant contributions within a year of assessment may help reduce your income chargeable to tax while also strengthening your retirement savings.
  
  Prudential “PruRetirement Deferred Annuity Plan” is a Qualifying Deferred Annuity Policy (QDAP) certified by the Insurance Authority. In addition to providing stable monthly annuity income for up to 10 or 20 years in the future, qualifying premiums may be eligible for tax deduction, subject to the annual cap of HK$60,000 per taxpayer^.

 

• VHIS premiums:
  If you have medical protection needs, you may review whether a qualifying Voluntary Health Insurance Scheme (VHIS) plan is suitable. This may help enhance your medical coverage while also allowing you to claim a tax deduction for the eligible premiums.
  
  Prudential VHIS Series covers Government-recognised Standard Plans and Flexi Plans, offering protection options ranging from basic to more comprehensive to suit different needs. The series also provides a range of value-added services, such as 24-hour global emergency assistance, Treatment Sure service and green medical channel services, helping to provide more support from diagnosis and treatment through to recovery.

Tip 3: Record and spread your annual expenses to avoid wasting deductions

Each deductible item is subject to an annual cap. If the deductible amount for a particular item is approaching the annual limit, you may consider deferring part of the expense to the next year of assessment so that the deduction capacity is not wasted by exceeding the cap in the same year. For example:

• If you plan to enrol in multiple continuing education courses, consider spreading them across different years of assessment.
• If your annuity contributions or Tax‑Deductible Voluntary Contributions (TVC) are close to the annual deduction limit, you may consider arranging part of the contributions in the next year of assessment.

Tip 4: Use a tax calculator to estimate in advance

• There are many online tax calculators, such as the Prudential Tax Calculator*. By entering your income, allowances and deduction items, you can estimate your tax payable.
• It is advisable to do a trial calculation mid-year to understand your current tax position, and then decide whether you need to make additional deductible arrangements.