If you are resident but are non-UK domiciled, you have the benefit of avoiding paying income or capital gains tax on investments which are kept overseas as long as you do not bring the income or the gains into the UK; and you can also avoid inheritance tax on property held overseas.
If you decide to bring your overseas money into the UK and you don’t want to pay taxes in the process, Business Investment Relief (BIR) is your answer. BIR works as a mutual symbiotic relationship between Non-doms that bring into the UK their foreign income and gains tax free, and British business that look for liquidity.
Business Investment Relief was introduced by the Finance Act 2012 and took effect from 6 April 2012. Only individuals who are UK resident non–dom can invest their overseas incomes and gains into the UK tax free.
Investment must be a qualifying investment made by either in newly issued shares or making a loan (secured or unsecured) to the target company, or by acquiring existing shares in a target company.
The Business must be eligible to receive the investment. Qualifying target company is an eligible trading company, an eligible stakeholder company, an eligible holding company, and, from the 6 April 2017 an eligible hybrid company. An eligible hybrid company is a private limited company which isn’t an eligible trading or stakeholder company. It carries on one or more commercial trades or may do so within the next 5 years and holds one or more investments in eligible trading companies or may do so within the next 5 years. Carrying on commercial trades and making investments in eligible trading companies are all, or substantially all, of what it does. The additional requirement that the trade should be commercial means that it is conducted on a commercial basis with a view to making profits. This requirement is met if the company carries on a relevant trade accounts for at least 80% of the total activities.
Note that quoted companies are excluded, but virtually any other company (but not non-corporate entities such as partnerships and sole proprietorships) carrying out a business may qualify (such as trading companies and trading groups). Investment can be made in a company in which the investor is or associates are involved in.
LIMITATIONS AND RESTRICTIONS
There is no limit of Business Investment Relief that is available.
If the investment is sold, funds must be re-invested within 45 days of the money being brought into the UK for the purposes of the investment. Original funds can be taken back offshore again (within a 45 day or 90 day time period) in order to avoid being taxed.
There are potentially chargeable events such as:
- The relevant person who made the investment disposes of all or part of their investment
- The company in which the investment was made ceases to be an eligible trading company, an eligible stakeholder company, an eligible holding company or an eligible hybrid company
- The 5 year start up rule is breached,
- The extraction of value rule in breached
If the potentially chargeable event occurs, then the foreign income and gains used to make the investment will be treated as having been remitted to the UK unless the investor takes the appropriate mitigation steps.
Unlike the EIS or SEIS rules, the rules for what makes up a qualifying company for Business Investment Relief are very wide. Unlike EIS or SEIS, investment into property development or property with a rent is allowable.
Business Investment Relief must be claimed by the following 31st January following the tax year of remittance.
Other reliefs are also available, such as: EIS Relief: income tax relief at 30% on up to £1m of investment and Capital Gains Tax relief on gain.
- SEIS Relief: income tax relief at 50% and Capital Gains Tax relief on gain.
- VCT Relief: income tax relief at 30% on up to £200,000 investment and Capital Gains Tax exemption.
- Entrepreneurs Relief: 10% Capital Gains Tax relief on up to £10m of gains.
- Business Property Relief: inheritance tax exemption after investment held for two years.