UK: Business Investment Relief

Last Updated: 16 July 2018
Article by Terence Pay

Business Investment Relief (BIR) is a potentially valuable tax relief for UK resident non-domiciled individuals looking to bring funds into the UK to invest in a qualifying trading company without triggering a taxable remittance.


Foreign income and gains that are brought into the UK by a remittance basis user will usually be subject to UK tax. However, where income and gains are remitted to the UK to invest commercially, no tax charge will arise on those foreign income and gains provided the conditions for BIR are met.

In circumstances where all the relevant conditions are met, there is no limit to the amount that can be brought into the UK and for which BIR can be claimed.

Qualifying Conditions

In order for an investment to qualify for BIR, the following conditions must be met:

  • The investment must be in a qualifying company (referred to as a "target company", as defined below), not a partnership or Limited Liability Partnership.
  • The investment must be made by either making a loan to the target company, subscribing for new shares in the target company, or purchasing existing shares in the target company.
  • The investment must be made within 45 days of the foreign income or gains being brought to the UK. Otherwise, the income and gains remitted to the UK will be taxable, unless they are taken overseas before the end of the 45-day period.
  • The investor or a 'relevant person' must not receive value from the company that is directly or indirectly linked to their investment (extraction of value rule) unless they take the appropriate mitigation steps. A 'relevant person' includes a spouse/civil partner, child or grandchild under the age of 18, the trustees of a settlement of which the taxpayer or one of the above is a beneficiary, and a close company including its 51% subsidiaries, in which the taxpayer or one of the above is a participator.
  • On the disposal of all or part of the investment (or the repayment of all or part of a loan) the proceeds (up to the amount of the original investment) must be taken outside the UK or reinvested in another qualifying company within 45 days.

Relief is not available if the investment forms part of a scheme or arrangement, the main purpose of which is to avoid UK tax.

Target Company

For a company to qualify as a target company for BIR purposes it must satisfy all of the following conditions:

  • It must be an unquoted trading company (including Alternative Investment Market (AIM) companies); and
  • If it is not already trading, it must be preparing to carry on a trade within five years of the date of the investment; and
  • Carrying on a commercial trade must be all, or substantially all, that the company does. This condition would normally be met where the commercial trade accounts for at least 80% of the company's total activities.
  • A holding company may also qualify if it is a member of an eligible trading group (i.e. all companies in the group are unquoted companies and the group as a whole passes the 80% commercial trading test).
  • From 6 April 2017, an eligible hybrid company also qualifes. An eligible hybrid is a private limited company which:

    • Is not an eligible trading or stakeholder company;
    • Carries on one or more commercial trades or is preparing to do so within the next 5 years;
    • Holds one or more investments in eligible trading companies or is preparing to do so within the next 5 years, and;
    • Carrying on commercial trades and making investments in eligible trading companies are all, or substantially all, of what it does (or will do once it begins operating).

A commercial trade includes any activity that is treated as a trade for corporation tax purposes. This includes farming or market gardening, the commercial occupation of land (but not woodland), land or property rentals (both commercial and residential rentals qualify), and research and development activities which are intended to lead to a commercial trade.

Extraction of Value Rule

If the investor breaches the extraction of value rule, and does not take appropriate mitigation steps within the requisite period of time, all the original foreign income and gains invested are treated as remitted.

The extraction of value rule is not breached where the value received by the investor (or a relevant person):

  1. Is subject to income tax or corporation tax (or would be if the relevant person were liable to such tax), and
  2. Is paid or provided to the investor (or a relevant person) in the ordinary course of business and on arm's length terms.

Where a commercial return is received on the taxpayer's investment, this should not breach the extraction of value rule. For example, dividends paid out of profits, or interest paid on a loan to the company that any similar investor might reasonably expect to receive, will not be a benefit for these purposes.

The investor can be a director of the company, provided that his salary and benefits are at a market rate for the work carried out.

Breaching the relevant conditions

Whilst the original investment may qualify for relief, it is possible that certain subsequent events could result in a breach of the conditions. This may happen in any of the following instances:

  • All or part of the investment is disposed of
  • The target company ceases to qualify
  • The extraction of value (benefit) rule is breached
  • The five year start up rule is breached

In the event that a condition is breached, this will give rise to a taxable remittance unless appropriate mitigation steps are taken, and professional advice should be sought.

Time limit for making a claim

A claim for Business Investment Relief must be made on the investor's tax return by the first anniversary of 31st January following the end of the tax year in which the investment, or reinvestment, was made. So, if a qualifying investment or reinvestment is made in 2018/19, the claim must be made by 31st January 2020.

The onus of proof that relief is due rests with the person claiming the relief, and therefore evidence to support the claim should be retained.

Advance clearance from HMRC

An individual intending to make use of BIR can ask HMRC for their opinion as to whether the investment will qualify.

Other reliefs

In addition to BIR, the investment can potentially also attract other tax reliefs, including:

  • Enterprise Investment Scheme (EIS) Relief (income tax relief at 30% on up to £1 million of investment and CGT exemption/deferral relief).
  • Seed EIS Relief (income tax relief at 50% on up to £100,000 of investment and CGT exemption/reinvestment relief).
  • Venture Capital Trust Relief (income tax relief at 30% on up to £200,000 of investment and CGT exemption).
  • Entrepreneurs' Relief (effective 10% rate of CGT on up to £10 million of lifetime gains).
  • Business Property Relief (IHT exemption after investment held for two years).


Business Investment Relief is a valuable relief for non-domiciled individuals looking to invest commercially in the UK. Care needs to be taken to ensure that the investment conditions are satisfied and are not inadvertently breached either by the investor or the company throughout the lifetime of the investment. If a disposal occurs, the investor will need to ensure the proceeds are either reinvested or taken overseas within the relevant time limits. Professional advice should be sought in all cases.

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.

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