Business investment relief (BIR) has been a feature of the UK tax system since April 2012 and it is unusual, being the only exception to the remittance basis of taxation that is ‘purpose-specific’. BIR allows UK resident non-doms to bring into the UK untaxed foreign income and foreign gains without making a taxable remittance of those funds. The purpose of the relief is to encourage foreign investment into UK commercial enterprise. However, as reliefs go, it is relatively unloved. Its uptake since inception has been limited but, thanks to the Autumn Statement 2015, it is back in the spotlight again as the Government announced a consultation on altering BIR to increase its use, with the aim of increasing investment into UK businesses.
In some respects, BIR is rather generous. There is no upper limit on the amount of foreign income and gains that can be brought in. The funds can be raised by way of a loan which is repaid using foreign income and gains if preferred. The investment has to be made into an unlisted company (which need not be a UK company) and the company’s activities can include (usually) developing or letting property, or research and development, in addition to trading (or investment into a holding company investing in these types of company), as long as the activity is being carried on on a commercial basis. There is no time limit on how long the investment can be held.
In other respects, BIR is rather unattractive, though. Although HMRC offers a pre-approval service for reassurance that BIR applies before a remittance is made, a decision could take longer to obtain than the 45 day time limit permitted for funds brought into the UK to be invested in the target company. The investment can only be by way of a subscription for a new issue of shares or other securities or by way of loan. The target company also has to remain qualifying throughout and this must be continually monitored as, if the company ceases to qualify, a non-dom will have, in most cases, only 45 days to take the invested funds out of the UK again or reinvest into another qualifying target company. The relief has to be claimed through a UK tax return, which will inevitably involve additional information being provided to HMRC where there may have been no requirement to fill in a tax return before. In addition, investments into listed companies or any type of partnership do not qualify for BIR.
The relief has the potential to be attractive to wealthy resident non-dom investors. However, the Government’s announcement sits uneasily with the tightening up of the remittance basis of taxation for long term resident non-doms ushered in by July’s Summer Budget and on which we are waiting for more details, now the Government’s consultation on that new measure has closed. The Government will need to do more than this to win back the trust of non-dom investors.