I had a query from a UK resident and non-domiciled individual who had moved to the UK from abroad and was tax resident in the UK. They wanted to bring their offshore funds into the UK and use these funds to start a new business.
As UK resident non-domiciled individuals, they had accumulated substantial foreign income and gains. Due to the intricacies of the UK tax system this money was left offshore sitting idle due to the threat of a remittance tax charge arising if brought to, or enjoyed in, the UK.
This scenario was like a call for Batman, except in this case the light in the sky was a pound sign (other currencies might be available) emitting from an offshore bank account, and we came equipped with suits and legislation rather than capes and the bat mobile – although, we like to think our tools of trade are just as effective.
What is Business Investment Relief?
The Finance Act 2012 introduced Business Investment Relief as a special relief for UK non-doms encouraging them to remit funds into the UK for investment purposes. Foreign income and gains which are remitted to the UK will not be subject to a remittance basis tax charge, provided they are used for qualifying investments. An investment can be by way of a loan (secured or unsecured) or by subscribing for shares in the company. However, it must be an investment in a Company. LLPs, Partnerships and sole traders need not apply.
The two main conditions for an investment to qualify
Condition A is that the target company is a private limited company which is either; a trading company, a stakeholder company or a holding company (of which the group members are also private limited company).
Condition B is that no relevant person has (directly or indirectly) obtained or become entitled to obtain any related benefit, and no relevant person expects to obtain any such benefit.
As you can probably see, the government is aiming to encourage investment into business (trading business) whilst retaining a provision to prevent your funds being remitted to the UK in the guise of an investment.
Unwinding the investment
It is important to note once the investment is being unwound then the original capital must be repaid offshore These funds must be expatriated within 45 days or reinvested in to another qualifying investment.
Don’t forget that any investment return will be subject to UK tax in the normal manner.
Interaction with other tax reliefs
No man is an island and neither is any tax relief. Business Investment Relief can interact quite favourably with other investment reliefs such as EIS and Business Property Relief depending on the nature and structure of the investment.
The above provides a basic introduction to business investment relief and there are further provisions which need to be considered. However, if you’re a UK non-dom and are considering a potential investment opportunity in the UK, please do contact us for a further discussion on how business investment relief would apply to you.