Changes to business investment relief

We examine the Government's legislation to allow non-UK domiciled individuals to put money into UK businesses without triggering a tax charge.

The opportunity

The Government has introduced, from 6 April 2012, a business investment relief for remitted foreign income and gains. The relief applies to UK resident non-domiciled persons and allows them to remit overseas income and capital gains to the UK taxfree for the purposes of a business investment which satisfies certain conditions. These include the following.

  • Money must be put into a private limited company that is either an eligible trading company, stakeholder company or holding company.
  • An eligible trading company must be carrying on at least one trade, or preparing to do so within the next two years.
  • Funding must be in the form of shares or loans.
  • The investment must be made within 45 days of the income or gains being remitted to the UK.

The dangers

Any remuneration or benefit received directly or indirectly and related to making the investment must not be excessive. An excessive benefit or extraction of value results in loss of the relief unless remedial action is taken. Such a benefit might be in the form of money, capital, property or goods and services.

When considering whether an individual has received such a benefit it will be necessary to take account of any benefit received by a relevant person – their spouse or civil partner, minor children or grandchildren, certain close companies and trustees.

If the remitted cash is not invested in a qualifying company within 45 days, the cash should be taken back offshore, otherwise it will be treated as a taxable remittance. In the event that shares are sold or a loan repaid this will be a chargeable event and the amount originally invested should be taken offshore or reinvested in a further qualifying company within 45 days.

If the chargeable event arises because of anything other than a disposal, such as an extraction of value by excessive remuneration or benefit, the investor has 90 days to make a disposal and 45 days to take the amount of the investment offshore.

However, if the chargeable event is a transaction that results in a CGT liability, the investor will be able to acquire a certificate of tax deposit out of the proceeds of sale to discharge the UK tax and need not reinvest that amount or transfer it offshore.

A welcome relief

Overall, this looks to be a welcome relief allowing offshore resources to be deployed. The type of trading activity permitted will include commercial and residential letting and it is understood that this will include cases where a company owns just a single property, provided there is a profit motive. The investment might well attract other tax-efficient reliefs such as EIS, VCT, CGT entrepreneurs' relief and inheritance tax business property relief.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.