UK immigration programmes and the taxation of non-UK domiciled individuals

The UK government has brought forward plans for two new visa routes to be introduced for skilled businesspeople in a bid to attract more international talent in advance of Brexit. An announcement on 7 March also included reform of the existing Tier 1 Investor route.

As of 1 August 2019, new applications under the Tier 1 Entrepreneur visa will be divided into two categories – ‘Start-up’ and ‘Innovator’. Both will require a higher level of English language ability, as well as both an endorsement and approval from a ‘trusted body’.

The Start-up Visa category is an expanded version of the Tier 1 (Graduate Entrepreneur) category. It is for those who can secure an endorsement for starting a new business for the first time in the UK. There is no requirement for applicants to be graduates and to have secured any initial funding. Successful applicants will be granted two years’ leave and will be able to progress into the Innovator category and to continue developing their businesses in the UK after that time.

The Innovator Visa category is intended for more experienced businesspeople. In addition to an endorsement, applicants will need £50,000 to invest in their business from any legitimate source – a significant reduction from the £200,000 requirement for most applicants under the current Tier 1 Entrepreneur category.

This funding requirement will further be waived for applicants switching from the Start-up category who can demonstrate that they have made significant achievements against their business plans. The category may lead to settlement in the UK.

The Tier 1 Investor visa is also being revised. For applications submitted after 30 March 2019, applicants will have to show two years of source of funds rather than the current 90 days. UK government bonds will also no longer qualify as investments and evidence from the applicant’s bank/investment manager will be more demanding.

Sovereign is able to advise on the full range of UK immigration applications and our London office is currently assisting Turkish, South Korean and Chinese nationals who are seeking to relocate to the UK to take advantage of one of three fast-track immigration programmes available to non-EU nationals.

Despite the current Brexit uncertainty, the UK is consistently chosen by HNWIs and their families for its appeal as a global commercial hub, with a robust legal system, a strong property market, advantageous tax regime and excellent cultural, educational and medical provision.

UK immigration rules are specifically designed to attract investors, entrepreneurs and people of talent, and the numbers of applicants have been increasing. In the year up to 31 March 2018, 405 people applied for Tier 1 visas, up from 278 in the previous 12 months – a 46% increase.

Any individual who is tax resident in the UK but non-UK domiciled is entitled to use the special basis of taxation known as the remittance basis. UK income and gains are taxable, but non-UK income and gains are not, unless remitted to the UK. Furthermore, overseas assets are not generally exposed to UK Inheritance Tax (IHT).

For individuals who lack any prior connections to the UK, a ‘deemed domicile’ is only acquired at the beginning of the sixteenth tax year of UK residence, so the remittance basis is available for a 15-year period. From the eighth tax year of continuous UK residence, the ‘remittance basis charge (RBC) typically becomes payable. This is initially £30,000 per year but rises to £60,000 per year from the thirteenth tax year of continuous UK residence.

If an individual intends to become resident in the UK as a remittance basis user, it is essential that ‘pre-arrival’ planning steps should be undertaken before the individual becomes UK resident to maximise tax efficiency and minimise compliance costs.

From tax year 2020/21, the standard rate of UK corporation tax is scheduled to reduce to just 17%, the lowest in the G7. It addition, the UK has double tax treaties with more than 130 countries, making it one of the world’s largest networks.

UK holding companies offer an ideal vehicle for the acquisition of new and existing trading subsidiaries. The ‘participation exemption’ rules permit dividends received by a UK holding company and capital gains made by a UK holding company on the sale of shares in a subsidiary to be free of tax in the UK. This allows for gross re-investment of funds.

There is also no exit tax on dividends being paid by a UK company to an overseas shareholder and the UK’s large network of tax treaties and agreements allows tax efficient profit extraction by way of interest or royalties.

Below is a summary of the main changes and features of the visa categories under the Tier 1 route.

Investor Visa (Tier 1)

The UK Investor visa scheme is a highly attractive immigration category. The scheme allows an investor and their family to live in the UK if they have funds of at least £2 million. Unlike virtually all other immigration categories, there is no English language requirement at entry stage and investors and their family are allowed to work, establish a business or study.

Key requirements include:

• Funds of at least £2 million must be invested in UK government bonds, share capital or loan capital in active and trading UK registered companies;
• Minimum age of 18 for the investor visa applicant;
• The funds must have been held consistently for three months prior to application, or specific evidence of the source of funds must be supplied;
• Funds do not have to be in the UK at the date of application but must be held in a regulated financial institution and be freely transferrable to the UK;
• The applicant must have a UK bank account at the date of application;
• The investor can bring their spouse/partner and any children under the age of 18 without additional investment.

The Investor Visa also offers fast track routes to permanent residence – Indefinite Leave to Remain (ILR) ¬– in the UK. Generally, it takes five years to obtain ILR in the UK, which can then lead to British Citizenship one year later. This time period can be reduced to only three years with an investment of £5 million, or two years with an investment of £10 million.

The funds must remain invested and absences from the UK should not exceed 180 days per year until ILR is granted. A test of knowledge of English language and life in the UK is required at the ILR stage.

Start-up Visa

This visa category is an expanded version of Tier 1 (Graduate Entrepreneur) category, which will be closed to new applicants from 5 July 2019. It is targeted for migrants looking to start a new business for the first time in the UK.

The Start-up visa category expands eligibility to more applicants, not just recent graduates, and without the need to have secured initial funds for their businesses.

Applicants are required to be endorsed by an independent endorsing body that has been vetted by the UK government.

The Start-up visa will be granted for two years initially (doubled from one year under the Graduate Entrepreneur category) and applicants are then permitted to progress to the Innovator category.

Innovator Visa

This visa category replaces the Tier 1 (Entrepreneur) route, which is closed to new applicants from March 29, 2019. It is intended for more experienced businesspeople with innovative, viable and scalable business plans.

Applicants are required to be endorsed by a designated endorsing body approved by the UK government.

Additional requirement of £50,000 funds to be invested in their businesses, which is substantially reduced from the £200,000 funds requirement for most applicants under the previous Tier 1 (Entrepreneur) category.

Applicants who satisfy at least two of the Home Office’s new criteria (covering investment, innovation, business growth and job creation) may qualify for settlement after three years on this visa category.

Representative of an Overseas Business Visa

The Representative of an Overseas Business category allows a business that has no branch or subsidiary in the UK to send a senior employee to the UK to establish a branch or subsidiary.

This category does not require a £200,000 investment but does have an English language requirement.

An applicant for a sole representative visa must:

• Be recruited and employed outside the UK by a company whose headquarters and principal place of business are outside the UK;
• Have extensive related industry experience and knowledge;
• Hold a senior position within the company (but not be a major shareholder) and have full authority to make decisions on its behalf;
• Intend to establish the company’s first commercial presence in the UK, for example a registered branch or a wholly owned subsidiary.

An applicant may also be eligible if the company has a legal entity in the UK that does not employ staff or transact business.

A visa holder can work for the employer, full time, and can bring family (‘dependents’) to the UK.

A visa is issued for an initial period of three years, which can be extended multiple times for a further two years. After the holder has been in the UK for five years they can apply for ILR status.

Sovereign acts for a wide range of clients, including HNWIs, families and businesses and is able to advise on a wide range of UK immigration applications to ensure compliance with the constantly evolving legislation.

For further information please contact Simon Denton, Managing Director of Sovereign (UK), by telephone at +44 (0)20 7389 0555 or by email.