A UK resident, non domiciled individual can remit offshore funds to the UK without a tax charge applied on them.
However, in most circumstances, non-UK income and gains will be incorrectly applied with these off-shore capital amounts, and the matching rules for remittances to the UK from mixed funds such as these can make it difficult for the real investment funds to be extracted.
To prevent negative consequences occurring on investment in the UK Business environment, Business Investment Relief (BIR) has been introduced since 6 April 2012. From this date, UK resident, non-UK domiciliaries who invest in certain qualifying companies have been able to bring non-UK source income and gains into the UK without a UK tax charge. According to UK government sources, approximately £1.5 billion of investment has been made using BIR since its inception and this has proved to be a valuable incentive to the UK economic growth.
The most significant feature of BIR that can not be seen with most of similar investment incentives is that the amount that can be claimed under this BIR relief is unlimited. However, there are, as one would expect, conditions which must be satisfied in order for this BIR to be valid. However, the other important feature that is worth considering and most of private investrors are looking into is that this BIR does not have any limit on investments, i.e entrepreneurs can bring any amount of offshore funds into the UK without any cap on them (See Investors' Relief below for contrast)
Conditions that must be satisfied for BIR to be valid
- The investment must be must be in a qualifying company known as target company.
- The investment may be in the form of shares (either preference or ordinary) or loans.
- From 6 April 2017, this includes the acquisition of existing shares rather than just newly issued shares (as was the case prior to 6 April 2017).
- The investment must be made within 45 days of the offshore income/gains being brought to the UK.
- No benefit attributable to the investment can be received by the investor or any ‘relevant person’. Relevant person includes spouse/civil partner, children or grandchildren under the age of 18, trustees of a settlement where a relevant person is a beneficiary, and a participator in a close company.
- On the disposal of the investment, the proceeds of sale up to the amount of the original investment must be taken offshore or reinvested in another qualifying company within 45 days.
What is Investors' Relief (IR)
Another tax relief that is available for external investors in trading companies is the Investors’ Relief. IR was introduced in Finance Act 2016, and now comprises part of a mixture of tax reliefs designed to encourage investment and entrepreneurial activity in the UK.
This relief contain different qualifying conditions and it will be important for individuals undertaking such activity to understand which reliefs are most appropriate according to their individual circumstances, how they interact with each other, and whether possible future actions might jeopardise this valuable relief.
Investors’ Relief (IR) is, in some ways, less restrictive than certain similar incentives such as Enterprise Investment Scheme (EIS) and it is expected that this IR would be attractive to many taxpayers if the qualifying conditions can be satisfied.
Significant features in Investors’ relief
- IR offers a 10% capital gains tax (CGT) rate.
- There is a lifetime limit of £10m gains that applies.
- It can apply to disposals of shares in an unlisted trading company or the holding company of a trading group.
- The shares must be ordinary shares, subscribed for and fully paid in cash, and held for at least three years from 6 April 2016.
- There are restrictions on the ability of investors to be employees or directors of the company.
- The shares must have been issued and subscribed for at arm’s length for genuine commercial reasons and not as part of a ‘tax avoidance’ arrangement.