Given the uncertain times we are currently looming in, it comes as no surprise that UK investment has decreased and further reductions are expected in course of 2019. The political uncertainty has increased withdrawals from UK investment funds. Furthermore, the office for National Statistics report the birth of UK business has decreased for the first time since 2010, with a birth rate of 13.1% in 2017 compared with a rate of 14.6% in 2016. Whilst UK business deaths have increased, with a death rate of 12.2% in 2017 compared to a rate of 10.2% in 2016. These findings suggest the narrowing of opportunities to invest in the UK. It is crucial to note that there are still some generous tax reliefs in existence today which can somewhat mitigate the risk associated with investing in the UK in today’s climate.
One of those is Business Investment Relief (BIR). It is available to UK resident non-UK domicile taxpayers who have been a remittance basis user. BIR is an opportunity for individuals with available fund comprising of foreign income and gains, the ability to remit taxable foreign income and gains to the UK without this constituting a remittance for UK tax purposes.
In particular, BIR will benefit individuals that were unable to capitalise on the mixed fund cleansing rules HMRC introduced in the period from 6 April 2017 to 5 April 2019. Where mixed funds are still in existence, there are restrictions and tax implications on the use/remittance of those funds in the UK. BIR gives non-UK domicile taxpayers the ability to make unlimited investments, within the parameters of the BIR qualifying conditions, without bringing forth UK tax implications.
Qualifying BIR Conditions
- The investment can be made in the form of money or money’s worth derived from foreign income and gains.
- A subscription of newly/existing issued unquoted shares/securities or loans. It includes AIM shares which also have inheritance tax breaks.
- The investment can be made in a qualifying company via nominees, rather than directly by the person. The investment is not limited to the individual, investment can be made via an offshore Trust, company or Nominee.
- The investment must be made within 45 days of the funds being brought to the UK.
- The investor should not obtain or be entitled to a direct /indirect related benefit.
- The Investment must meet the BIR legislative definition of ‘The Target Company’, which is one of the following:
- Trading Company
- Stakeholder Company
- Trading/stakeholder hybrid company
- Holding Company
- 5 year start up rule – The Target Company has a period of 5 years from the date of the funds were brought to the UK for investment, to carry one at least one commercial trade.
BIR can also be utilised alongside tax driven investments such as Enterprise investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). Such investments would not only ensure the taxable foreign income and gain would be remitted to the UK free of UK tax, but there would be scope to capitalise on further reliefs. For EIS, Income tax relief at 30% is available on a maximum investment of £1 million. EIS deferral relief is also available when any type of asset is sold. Furthermore if the EIS investment is held for 3 years, the disposal will be exempt for CGT purposes. For SEIS, income tax relief at 50% is available on a maximum investment of £500,000. SEIS exemption is also available when any type of asset is sold. Furthermore if the SEIS investment is held for 3 years, the disposal will be exempt for CGT purposes.
Please note, BIR may be withdrawn where potential chargeable events occur. This can be in the form of a disposal of all or part of the investment, a breach of extraction of value from the target company or the breach of the 5 year start up rule and ceasing to be an eligible target company. Appropriate mitigation steps will need to be taken and this involves taking funds offshore within 45 days of the potential chargeable event occurring or reinvestment in another target company within 45 days.
Key BIR Services Offered by Elman Wall
- A review of the potential investment against the BIR legislative conditions that must be met.
- Preparation of advance assurance clearance to HMRC.
- Assistance with BIR claim and disclosure note.
- Post investment BIR mitigation planning.
- A review of the tax implications on exit of investment.
The rules are highly complex and will need to be reviewed by a qualified tax advisor. Please do not hesitate to get in contact should you wish to enquire about this relief further. You can call us on 0207 600 5667 or email Folafemi Otoo, Tax Manager, at firstname.lastname@example.org