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Expat Briefing Editorial Team, 25 June, 2013
The United Kingdom rarely comes out on top in the numerous expatriate surveys which attempt to find the most popular and attractive destinations for those working or seeking a new life abroad. Indeed, the UK is usually nowhere near the top of such league tables. However, the UK does attract substantial numbers of wealthy foreign investors, and figures for the recently introduced UK investor visa show that there has been a recent surge in applications.
In some respects, it is easy to see why the UK is not top of the list of destinations favoured by expats, especially those who are looking to retire abroad. Its weather is generally terrible, its taxes are on the high side, its roads are often gridlocked, and its public transport is eye-wateringly expensive. And did we mention the terrible weather?
But for expats at the wealthier end of the scale and who are active investors, the UK has tended to hold more allure than many other countries in Europe. This is in large part due to the fact that London is one of the world’s largest financial centres. It is also because the UK generally is politically stable, has a transparent legal system and an independent judiciary. And although the UK is a high-tax economy, its tax burden is lower than many other Western European countries, and certain aspects of its tax system remain attractive to foreign investors.
According to international law firm Pinsent Masons, the number of investor visas issued shot up from 235 in 2010-11 (year ending June 30) to 419 in 2011-12, an increase of 78%. Russian investors formed the biggest group in 2011-12, representing 24% of all successful applicants, and applications from Russia for UK investor visas nearly doubled from 65 in 2010-11 to 121 in 2012. China (23% of issued visas) was the next most common country of origin, and successful applications from China for UK investor visas shot up from 39 in 2010-11 to 95 in 2011-12. The United States (5%) represented the third-most popular country of origin.
As mentioned, London remains a big draw for wealthy foreigners in the UK, both as a finance hub and as a safe haven for property investors.
“Foreign nationals still see London as an expat friendly gateway to Europe,” said Simon Horsfield, the head of Pinsent Masons' business immigration team. “London offers both political stability and a very transparent legal system. Investors see prime property in the capital as a very attractive and liquid asset. Prime property prices in London have remained stable or even increased despite the global downturn, which is a real lure for High Net Worths.”
“Many are keen to educate their children in the UK, while the prestige of owning London property and a burgeoning Russian expat community mean that London will be an increasingly popular destination for wealthy Russian emigrants,” Horsfield adds. “Continued uncertainties over how independent the Judiciary is in Russia mean that it’s important for many Russian businessmen to have second homes in London.”
Affluent Chinese citizens are attracted to London for much the same reason as Russian investors, and the figures also reveal that visas issued to Iranians more than doubled from five in 2010/11 to 12 in 2011/12. Horsfield says: “There are signs that sanctions imposed on Iran and political instability in Egypt is also benefitting the UK – for example the numbers of successful investor migrants from Iran have doubled over the last year.”
“It’s likely that even more wealthy individuals from Egypt or Libya have opted to move to the UAE region – which also offers plenty of safe havens – for the time being. If it weren’t for these neighbouring safe havens the number of High Net Worth emigrants from North African or Arab spring nations would certainly be higher.”
Another influence on the figures could be that other opportunities for gaining UK visas are becoming more restricted, which makes the investor visa a more popular option.
Horsfield explains: “Successive rule changes have made gaining access to the UK very difficult for non-EU migrants. Wealthy entrepreneurs have been funnelled towards investor visas as a result.
“For wealthy individuals, the criteria for the visa are very easy to meet. They’re essentially a fast-track for migrants who have money and are keen to invest in UK businesses,” he concludes.
The Investor Visa
First introduced in 2008, investor visas allow high net worth foreign individuals, with at least GBP1 million to invest, to remain in the UK on a long term basis and they are seen as a fast track for wealthy foreign nationals, and their children, to become British citizens.
The UK investor visa is known officially as the Tier 1 (Investor) Visa. Unlike UK “work” visas, the applicant seeking entry (known as leave to enter) to the UK under this route will not need to show any English language ability because, while the applicant is permitted to work in the UK if they so wish, it is assumed that they don’t need to work (however, those wishing to remain in the UK on a permanent basis must eventually pass a language test).
Applicants also do not need to show evidence that they can support themselves during their stay in the UK because it is assumed that if they have the required investment funds they will not need help from the public purse.
The Tier 1 (Investor) visa is part of the UK’s points-based immigration system, which is for migrants from outside Europe.
You do not need to apply under the points-based system if:
you are a national of a country in the European Economic Area or Switzerland
you are a British overseas territories citizen, unless you are from one of the sovereign base areas in Cyprus;
you are a Commonwealth citizen with permission to enter or stay in the UK because at least one of your grandparents was born here
your partner or (if you are under 18) one of your parents has permission to stay in the UK under Tier 1 (Investor) (you should apply as their dependant); or
you have no conditions or time limit attached to your stay.
If you need to apply for a UK investor visa you need to meet the following stipulations:
have money of your own, under your control, held in a regulated financial institution and disposable in the UK amounting to no less than GBP1 million; or
own personal assets which, taking into account any liabilities to which they are subject, have a value exceeding GBP2 million; and
have money under your control held in a regulated financial institution and disposable in the UK amounting to no less than GBP1 million, which has been loaned to you by a UK regulated financial institution.
You may not mix personal money and borrowed money in order to meet the total GBP1 million investment required. However, the money may be held overseas at the time of application.
You may use investments made in the UK within the 12 months immediately before the date of the application, provided they are held in a regulated financial institution.
Assets or possessions such as property cannot be used as evidence of your funds for investment. In all cases you must be the beneficial owner of the funds and not holding the investments on behalf of anyone else.
Documentary evidence of your ability to qualify for an entry visa will be required, such as bank account statements (covering at least 90 days before the date of the application), or a letter or portfolio from a UK regulated financial institution (if the portfolio is self-managed or the portfolio manager operates outside of the UK, documentary evidence of your holdings used in the application is required).
If the money used to demonstrate this has not been held in a portfolio or bank account for at least three months, you will need to establish the source of these funds. Documents used for your application must be issued by an authorised official of the issuing organisation and be: original; and on the official letter-headed paper or stationery of the organisation.
If granted leave to enter the UK under an investor visa, you may stay for a period of three years and four months. In order to extend your leave in this category you must:
Have money of your own, under your own control, in the UK amounting to not less than GBP1 million; or
Have personal assets which, taking into account any liabilities to which they are subject, have a value exceeding GBP2 million; and
have money under your control and disposable in the UK amounting to no less than GBP1 million, which has been loaned to you by a UK regulated financial institution.
have invested not less than GBP750,000 of your capital in the UK by way of UK Government bonds, share capital or loan capital in active and trading UK registered companies other than those principally engaged in property investment; and have invested the remaining balance of GBP1 million in the UK by the purchase of assets or by maintaining the money on deposit in a UK regulated financial institution.
You must also show that the minimum investment (GBP750,000) was invested within three months of your entry into the UK and was maintained at that level throughout the period of your leave. If the value of your investments is reduced by fluctuations in share prices, it must be corrected by the next reporting period, so that the overall value of these investments is maintained throughout your leave.
If the extension application is granted, your visa will be extended for 2 years.
Investments that do not count towards points
The minimum investment must not be invested through an offshore company or trust or held in offshore custody. This is to ensure, among other things, maximum tax benefit to the UK. For the purposes of investor visa applications, the UK Government does not regard investment from offshore companies as investment in the UK.
The funds must not be invested in open-ended investment companies, investment trust companies or pooled investment vehicles. This is because such investments cannot be guaranteed to be in the UK.
The funds must not be invested in companies mainly engaged in property investment, property management or property development. This requirement prevents investment in companies whose main function is to own or manage land or buildings. It does not prevent investment in, for example, construction firms, manufacturers or retailers who own their own premises.
The funds must not be invested by using deposits with a bank, building society or other enterprise whose normal course of business includes the acceptance of deposits.
Applications that rely on leveraged investment funds, including the purchase of stocks or other investments by using borrowed funds (on margin) will not be approved.
Applications that rely on money that a loan has been secured against, where another party would have a claim on the money if loan repayments were not met will also not be accepted.
Indefinite Leave to Remain
If you intend to settle in the UK indefinitely, then you may be granted indefinite leave to remain after two years if you meet all of the following conditions:
You have money under your control in the UK of at least GBP10 million; or
net personal wealth of at least GBP20 million; and
money borrowed from a FSA regulated financial institution and under your control of not less than GBP10 million.
You invest at least GBP7.5 million in UK Government bonds, share capital or loan capital in active and trading UK registered permitted companies; and
the balance of the GBP10 million in the UK by purchasing assets in the UK or by maintaining the money on deposit in a UK regulated financial institution.
Throughout the two-year period you spend less than 180 days in any calendar year outside the UK; and
You pass The “Life in the UK” test to demonstrate that you have met the knowledge of language and life in the UK requirement.
You can apply for indefinite leave to remain after three years in the UK if you meet the following conditions:
Money under your control of at least GBP5 million;
Net personal worth of at least GBP10 million; and borrowed money of not less than GBP5 million;
At least GBP3.75 million invested in the UK; and a balance of at least GBP5 million in the UK by purchasing assets in the UK or by maintaining the money on deposit in a UK;
Less than 180 days a year must have been spent outside the UK in any calendar year.
Have passed the Life in the UK test.
You can apply for indefinite leave to remain after five years if the following conditions are met.
Money under your control of at least GBP1 million;
Net personal worth of GBP2 million and borrowed money under your control of at least GBP1 million;
Minimum investment of GBP750,000; and a balance of GBP1 million in UK assets or on deposit;
Less than 180 days spent outside the UK in any calendar year
You have passed the Life in the UK test
Dependents are permitted to join the applicant in the UK, although they need to make separate applications using the appropriate forms, which can be found at the UK Border Agency website along with more details of how to apply for an investor visa.
Traditionally, expats in the UK with a high net worth have been in an advantageous position with regards tax under the remittance basis of taxation. This means that foreigners who are resident in the UK, but not “domiciled” in the UK, do not have to pay UK tax on foreign income as long as it is not remitted to the UK.
The remittance basis of tax has been eroded over the last few years, and those wishing to benefit from it must pay an annual charge. Currently, those wishing to be taxed under the remittance basis must pay an annual charge of GBP30,000 if they have resided in the UK for more than seven years. But from the 2012/13 tax year, non-doms who have been resident in the UK for at least 12 of the previous 14 tax years face an annual levy of GBP50,000. The original GBP30,000 charge also remains in place.
The tax position of investors into the UK was substantially improved in 2012 with the introduction of the Business Investment Relief scheme. Under this scheme, individuals domiciled outside the UK are able to make unlimited investments into commercial businesses without incurring income or capital gains tax liabilities on the funds used for the purpose. Individuals resident, but not domiciled in the UK, who opt into the remittance taxation basis and pay the relevant charge, are also able to take advantage of this relief. Investments cannot be made into partnerships and PLCs listed on the London Stock Exchange, although investments on the AIM and PLUS exchanges are permitted. Nor can investment be made into a residential property company whose primary business is lettings.
However, the whole area of residence for tax purposes in the UK is notoriously archaic and has been subject to differing interpretations by the by tax authorities and the courts. It is hoped that a new statutory residence test, which aims to simplify the concepts of residence and domicile, will go some way towards solving these problems. It is expected that the new residence test will be passed by parliament in the summer of 2013, and have effect from April 6, 2013. HM Revenue and Customs has posted a guide to the remittance basis of taxation and the residency test on its website. The legislative situation with regards the new residency test is not entirely clear, however.
A lot of helpful information on various aspects of taxation in the UK and many other jurisdictions can be found at our partner site, www.lowtax.net. However, if you are thinking of emigrating to the UK to work, invest or just to live, we urge that you take independent advice from a qualified adviser with expertise in these fields.