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Business Investment Relief (BIR) for non-UK domiciled individuals (non-doms) – a hidden gem?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Business Investment Relief (BIR) for non-UK domiciled individuals (non-doms) – a hidden gem?

I had a meeting in London with a Russian domiciled lady which had been organised by a rather large international investment manager. The investment manager had asked me to attend to advise on some possible tax structuring issues and opportunities.

I was rather surprised to find that neither had heard of Business Investment Relief (“BIR”) and how the proposed investment might fall fairly and squarely within the relief.

The relief is relevant to non-doms who are on the remittance basis of taxation. This basis of taxation affords non-doms the privilege of holding their foreign income and gains offshore without any UK tax. If they decide to bring those funds to the UK (a remittance) then the underlying income and gains will be taxable absent any relief.

In short, BIR allows a non-UK domiciled individual who is taxed on the remittance basis to use that ‘idle’ money (from a UK perspective) held overseas in the UK as long as the form of the remittance is that of a qualifying investment in a qualifying UK commercial activity.

The form of the investment is generally more flexible than that set out, for example, for the purposes of EIS and Seed EIS schemes. Therefore, one may qualify for BIR but not under the EIS schemes.

The investment can be in the form of either equity or debt. In either case, the investment must be made in to private limited companies (not partnerships or sole traders allowed here).

The company must also be one of three types:

  • Eligible trading company – one whose activities (or substantially all of its activities) are carrying on or preparing to carry on a commercial activity (including renting property) or carrying out research and development;
  • Eligible holding company – a company which holds more than 51% of the shares in at least one eligible trading company;
  • Eligible stakeholder company – a private limited company which exists for the purpose of making investments in eligible trading companies.

In this regard, a private limited company means one which is not quoted on a recognised stock exchange. AIM and ISDX Growth markets are not considered as stock exchanges for these purposes.

The target company must use the investment in a qualifying trade within two years.

A handy feature of the regime is the ability to obtain advance clearance from HMRC in respect of a proposed investment.

 

If you have are a non-domiciled individual or an investment manager / raising capital then please do not hesitate to let us know if you have any queries.

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