UK resident individuals are generally taxed on their worldwide income. However, if the individual is a UK resident but non-UK domiciled and claims the remittance basis, they are only taxed on their overseas income when it is brought into the UK. Business Investment Relief is designed to encourage non-domiciled individuals to bring money into the UK for investment in commercial businesses.
Under this relief, foreign income and gains that are brought into the UK for investment purposes are treated as non-remitted and, therefore exempt from UK tax. In effect the funds are treated as remitted tax-free if Business Investment Relief is claimed.
It's important to note that this relief is not automatic and must be claimed by the individual. There is no limit to the amount of remitted income that qualifies for the relief.
Qualifying Investments
To benefit from Business Investment Relief, the investment must meet certain criteria:
Acquisition must be of shares or securities in a non-listed company.
A loan to a non-listed company.
The company must be a trading company. For the purposes of this relief, “trade” has a broad definition, meaning companies generating income from land (e.g., investment companies) may also qualify.
The company must either be actively trading or intend to begin trading within five years.
There is no requirement for the trade to be conducted in the UK nor for the company to be incorporated in the UK.
Investments in partnerships or Limited Liability Partnerships (LLPs) are not eligible for this relief.
Investment must be made within 45 days of the funds being remitted to the UK.
Restrictions on Benefits Received
Business Investment Relief is not available if the investor receives abnormal benefits from the investment. This includes, but is not limited to:
Using the company’s property or assets free of charge as a result of the investment.
Receiving interest on loans that exceeds the market rate.
However, the following benefits do not disqualify the investment from receiving relief:
Dividends paid from the company’s profits.
Reasonable interest charged on loans to the company.
Salary or director’s fees for acting as an employee or director.
Any other benefit that a similar investor might reasonably expect to receive.
Chargeable Events
Certain events will result in the original investment being treated as remitted and, therefore, chargeable to tax. These include:
The disposal of all or part of the investment.
The company fails to start trading within five years.
The company ceases to be eligible for Business Investment Relief.
Mitigation Steps
When a chargeable event occurs, the original investment is treated as remitted to the UK and becomes subject to tax. However there are mitigation steps that can help avoid the tax charge. These include:
· Taking the sum offshore or reinvesting in another qualifying investment within 45 days of disposing of the original investment.
· If a chargeable event occurs for reasons other than the disposal of shares (e.g., the company ceases to trade), the investor has 90 days to dispose of the holdings and an additional 45 days to either take the proceeds offshore or reinvest in another qualifying investment.
Speak to an Expert
If you are a UK resident and non-UK domiciled and are looking to bring funds into the UK without incurring UK tax on the remittance, or if you need advice on Business Investment Relief, please contact us. Our team will be happy to assist you.
Authored by: London Tax Team
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