In recent years, UK tax resident but non-UK domiciled individuals have been subject to a wide range of tax changes resulting in complex legislation particularly relating to the bringing of overseas funds to the UK, or remittances.
Business Investment Relief (BIR) is a very generous relief which enables non-domiciled individuals to bring funds into the UK without creating a taxable remittance, provided they are used for investment with a qualifying business purpose, such as UK property development or investment via a company.
Chancellor George Osborne announced in November’s Autumn Statement that the government will consult on how to change the rules on BIR to encourage greater use of the relief and increase investment in UK business by non-UK domiciled individuals.
The conditions for BIR are:
l It applies only to individuals who are considered to be UK resident but non-domiciled and taxed on the remittance basis.
l It allows them to bring overseas incomes and gains into the UK tax free and without limit.
l There are advantages available to non-UK domiciles individuals who are taxed on the remittance basis to bring funds to the UK under the BIR provisions to invest in Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) qualified companies.
l Monies brought into the UK must be used to invest in qualifying business investments, which are broader than those companies that qualify for EIS or SEIS. Quoted companies are excluded, but practically any other company carrying out a trading business may qualify, but not non-corporate entities, such as partnerships and sole proprietorships. Investment into property development or property rental companies is allowable.
l It can be invested in a company in which the investor is, or associates are, involved.
l Must be invested in the form of shares or loans and no related benefit can be received, such as property, goods or services, money or capital. The investor can extract value from the investment as long as it is on an arm’s length basis and is in the ordinary course of business, such as a salary. The no-benefit rules also apply to members of the individuals’ family.
l When the investment is sold, if there is a gain it will be subject to UK capital gains tax, but in order to avoid being taxed, the original funds can be taken back offshore again within a 45-day or 90-day time period.
l Funds must be invested within 45 days of being brought into the UK for the purposes of the investment.
l BIR must be claimed by the following January 31, following the tax year of remittance; usually within their UK tax return.
Some of the present conditions are arguably unnecessarily restrictive. In many instances, for example, an investment in a UK company will qualify for relief but an investment in a UK partnership will not. BIR has already been a useful tool for some non-doms and so it is encouraging to hear that the rules may be broadened to assist more individuals in bringing funds into the UK to invest.
