Relief for non-UK domiciled individuals has not gone unnoticed by this, and previous Governments, a fact most recently highlighted by the introduction of £30,000 and latterly £50,000 charge for remittance base users.
While this article is not a plea for sympathy, after all these individuals actually elect to pay this charge, the 2012 Budget did at least attempt to recognise the potential for inward investment from this influential group with the introduction of Business Investment Relief.
From 6 April 2012, BIR disapplies the usual rules that would make investing in UK companies a taxable remittance. In other words untaxed offshore income and gains can be used to invest in UK companies without the barrier of an immediate tax charge. The funds must be applied to a qualifying investment within a period of 45 days, and for the purposes of the legislation, a qualifying investment is where an individual acquires shares or makes a loan, secured or unsecured to a company, which meets one of the following criteria:
An eligible trading company – broadly a private limited company which carries one or more commercial trades,
An eligible stakeholder company – a private limited company which exists for the purpose of investing in eligible trading companies.
An eligible holding company – a member of eligible trading group which is where a parent company together with each of its 51% subsidiaries are private limited companies.
When looking at whether a business is conducting a commercial trade it would appear that any activity which is treated as a trade for corporation tax purposes and conducted on a commercial basis qualifies. However, before making any investment an investor would be well advised to ask HMRC whether the proposed investment would qualify for the relief. At the same time the Government have confirmed that BIR does not affect an investor’s entitlement to other UK reliefs and consequently by combining BIR with Enterprise Investment Scheme Relief and business property relief investors will be able to:
- Shelter foreign income and gains from an immediate tax charge
- Benefit from income tax relief on their investment at 30 per cent (subject to limits)
- Realise any gain on their investment without tax, provided the investment has been held for three years, and
- Remove the value of the investment from the UK estate for IHT purposes after a period of two years.
While there are some very broadly drawn anti-avoidance rules which deny relief where it is being claimed for tax avoidance purposes, this is both an interesting and welcome move and one that non UK domiciled individuals would do well to consider.
Tony Mudd is director of tax and technical services at St James’s Place