Q1 2019

www.wealthandfinance-news.com 26 Wealth & Finance International - Q1 2019 The Tier 1 visa scheme was introduced in 2008, to entice wealthy foreign nationals to put their money into the UK. By investing a minimum of £2 million in UK Government bonds, share capital or loan capital in active and trading companies registered in the UK, individuals have been afforded a maximum of three years and four months’ stay, along with rights to work within their own business. Following the visa’s end date, they can also apply for a two-year extension. Compared to other, less straightforward routes of attaining a UK visa, the Tier 1 scheme has proven an attractive proposition for wealthy individuals from outside the EU, effectively providing them with a fast-track to living rights in the UK. While the scheme was originally billed as a key strategy for driving UK inward investment, the results have been somewhat mixed. It has certainly been popular, with more than 1,000 visas awarded in the year ending September 2018. However, exactly how much of applicants’ money has been invested in UK businesses as opposed to other types of assets has come under scrutiny. While there are currently restrictions in place regarding where applicants’ money has to be invested, these have been criticised for being too lenient. For instance, the £2 million sum can currently be invested in gilts, or UK Government bonds, which are essentially loans and the money can be retracted once the visa is granted. Not only does this form of investment fail to inject capital into UK businesses, the interest payable means that the Government tends to lose money on them in the long term. There are similar systems to the Tier 1 scheme across the EU and the rest of the world, some of which even grant citizenship as opposed to visas. Several have come under fire for facilitating illicit activities, such as money laundering and tax evasion. In 2014, the UK joined a number of ‘Golden Visa’ reforms: the UK must remain open for business In recent years, Tier 1 (Investor) visas, commonly referred to as ‘Golden Visas’, have made the news for all the wrong reasons, and the Home Office has taken note. On 6 December, it was announced that the scheme would be immediately suspended, prior to the introduction of a new one in early 2019. However, this decision was reversed almost immediately. So, where does this leave potential inward investors and what could it mean for the UK economy? nations in agreeing to an Automatic Exchange of Information process, which allows tax authorities around the world to work together to combat tax evasion. In February 2018, the OECD went further by publishing a consultation on the matter, calling for greater transparency around such schemes and blacklisting those that fail to meet certain standards. In the UK, a lack of processes for monitoring where money is being invested and checking that it has come from a legitimate source has become a cause for concern. These events culminated on 6 December, when the Home Office declared four key reforms to the scheme. Firstly, it proposed that gilts will no longer be a qualifying investment and that investments have to be made into unlisted trading companies. Secondly, pool investments will be created as an alternative placement for applicants’ funds, which will go towards financing selected SMEs across the country. Thirdly, all applicants will need to provide a comprehensive audit from an independent, UK-registered auditor, proving the legitimacy of their income sources. Finally, all applicants will have to prove that they have had full control of the £2 million they are investing in the system for at least two years prior to making the investment. These proposed changes are undoubtedly welcome, introducing much-needed due diligence processes into a system which has gone unchecked for too long. Additionally, the fact that investors will no longer be able to invest in Government bonds is good news for owner managed businesses, and could provide a much- needed stimulus for the UK economy. However, soon after the announcement, it was stated that implementation of the proposals would be pushed back to 2019, and the system was suspended. This immediately raised alarm bells, with concerns that such a move could result in a legal challenge, and the scheme has been reinstated. The decision to halt plans to suspend the scheme was a wise one. It is essential that such steps are supported with a series of consultations on the matter, involving insights from audit professionals. Moreover, any important changes to immigration policy should be implemented gradually, and with prior warning. This will ensure that investors have sufficient time to prepare applications accordingly, helping to avoid any negative impact on investment into the UK. Given the current climate of uncertainty in the UK ahead of Brexit, suspending the Tier 1 visa scheme would have sent out the wrong message to the rest of the world, and discouraged inward investment at a critical time. As such, it could have damaged the UK’s reputation as a place to do business. The current lack of clarity surrounding the scheme has caused some confusion among potential investors. In order to maximise the number of successful applications and ensure that they are completed correctly, it is essential for would-be investors to seek professional advice at an early stage. Whilst some foreign investors may have taken advantage of a lack of monitoring processes in the Tier 1 (Investor) visa system in the past, it is important that any replacement is well considered. Facing economic uncertainty, it is crucial that the UK is seen to be open for business and that legitimate investment is not only welcomed but encouraged. Tim Humphries is a private client and corporate tax specialist at accountancy firm, Menzies LLP.