The UK is introducing a number of changes in early April to the investor and entrepreneur visa systems.

The onset of April means that a number of new taxes and regulations take effect in the UK and one set of rules potentially affecting many high net worth individuals are adjustments to the country’s investment visa and entrepreneur visa systems. They are a part of a wider trend of countries trying to encourage wealthy people to invest (for more on the “golden visa” system, click here.) It is also worth noting that with a general election now under way in the UK, such visa systems are part of a broader debate about the extent, and nature, of immigration to the UK. The article is also being run for the benefit of readers in regions such as Asia who are interested - as many are - in what is happening.

This particular article is by Mark Davies, founder of Mark Davies & Associates. We are grateful for these insights and invite readers to respond.

The UK is perceived to be in the top tier of suitable destinations for wealthy migrants as it boasts a tolerant multicultural society, world class universities, rule of law, political stability and cities such as London, Manchester and Edinburgh, which are viewed internationally as being vibrant places to live and study. Furthermore, the ability to travel on a UK passport is considered to be an invaluable prize to internationally mobile clients.

In addition, the UK has a reasonably benign tax regime for wealthy migrants, commonly known as “non-doms”, who do not intend to make the UK their permanent home. Foreign income and gains earned pre-arrival can be brought to the UK tax free. After arrival here, non-doms can elect to be taxed on a “remittance basis”, whereby their UK source income and gains are taxed as they arise but foreign source income and gains are only taxed to the extent that these are remitted to the UK. After being UK resident in seven tax years, non-doms can either elect to pay tax on worldwide income or gains as they arise, or can claim the remittance basis and pay the remittance basis charge. There is no requirement to pay the remittance basis charge if the unremitted foreign income and gains are less than £2,000. The remittance basis charge is £30,000 per annum and increases to £60,000 per annum after 12 years of residence and £90,000 per annum after 17 tax years of residence.

Recently, the UK government has announced changes to the immigration rules for the tier one investor and entrepreneur visa applicants with effect from 6 April 2015. These changes have been taken to ensure that the process remains competitive and streamlined.

Tier one investor visa applicants
There is a new requirement to open a UK bank or investment account before applying for the visa.

This means that applicants may need to spend more time in the UK before the visa is granted in order to select an appropriate financial institution and to open an account. Applicants may find that some UK banks have problems taking on clients due to local anti-money laundering regulations who cannot demonstrate residency in the UK. The length of time it takes for administrative departments to actually open the account may also be problematic. The minimum age for applicants will increase from 16 to 18.

It will not be necessary to “top up” the qualifying investment in the UK if it falls beneath the minimum threshold. 

Applicants are required to invest £2 million in a qualifying investment in the UK, either in government bonds, share capital or in loans to active trading UK businesses. Problems could arise where the value of the investment drops beneath the £2 million threshold.

This would mean that the applicant might not be compliant with the rules for the whole of the duration of the visa and in consequence an application to renew the visa would be rejected. So a fall in investment value would mean that the qualifying investment would need to be “topped up” with additional funds.

This has the potential to create adverse tax consequences as bringing foreign income and gains to the UK once the applicant is UK tax resident is potentially a taxable remittance. However, this announcement has clarified that after 6 April 2015 there is no requirement to “top up” the £2 million investment if its value goes down or if a loss making investment is sold at a loss. This is providing that the gross proceeds are invested in a new qualifying investment by the earlier of end of the next reporting period, or six months from the date of disposal.

The qualifying investment cannot be used to pay any investment management fees, taxes or other costs.

This means that the applicant will need to keep funds aside to pay these various expenses. As the investment is in UK gilts or UK businesses any income or capital gains will be subject to UK taxes as they arise and so the future tax bill needs to be provided for.

Interest and dividends derived from the qualifying investment can be removed from the investment account or used to pay the investment management fees etc.

Applicants will have to prove that the investment belongs to them and in addition disclose the source of the funds if they have been gifted by someone else.

Tier one entrepreneur visa applicants

Tier one entrepreneur visa applicants are required to invest £200,000 in a qualifying UK business.

Applicants will have to demonstrate that they have held the investment funds for 90 consecutive days and applicants will have to provide a business plan to support their application. This means that applicants will need to commit time and resources to preparing a detailed business plan. There is an extension of the “genuineness test” to extensions to the visa at the end of its term and for indefinite leave to remain applications.

The “genuineness test” is an assessment by the Home Office to ascertain whether you intend to offer genuine employment to people with UK settled status. For a new business, this means two full time positions must have been created, with each lasting for at least one year.

In conclusion, international political instability and the tightening of domestic taxation rules will accelerate the trend for the internationally mobile wealthy to eschew tax avoidance schemes and vote with their feet and move to other jurisdictions.

The challenge for the UK is to remain competitive, which will require the Home Office and Treasury to collaborate to ensure that the package of visa and taxation are in unison.