On 16 October 2014 the Home Office announced significant changes to the Tier 1 (Investor) Visa route following recommendations published in a report by the Migration Advisory Committee ("MAC") on 25 February 2014.
The changes announced on 16 October 2014 by the Home Office to the Tier 1 (Investor) Visa route come into effect on 6 November 2014.
They will apply to applications for leave to enter or remain in the UK under the Tier 1 (Investor) Visa route submitted on or after this date and include the widely expected increase of the £1 million minimum investment threshold to £2 million, the removal of the "topping up" requirement and the removal of the "loan route" option, which allows applicants to used borrowed funds to make their investment in the UK.
The current position
The Tier 1 (Investor) Visa route was established for individuals prepared to make a substantial investment of at least £1 million in the UK. At least £750,000 of this must be invested in UK government bonds or shares/bonds in active and trading UK companies ("Qualifying Investments") with the remaining £250,000 invested in other permissible UK assets (such as un-mortgaged UK property or cash held in a UK bank account).
If the value of the Investor's overall investment drops below the minimum £1 million threshold at any point during the visa period it must be "topped up" by the next reporting period.
In return for his UK investment, the Investor, his spouse and minor children are permitted to live, work and/or study in the UK with relatively few restrictions. Provided the relevant visa conditions are met, after five years the Investor and his family may apply for permanent residency in the UK (known as 'Indefinite Leave to Remain' or 'Settlement').
After a further year (so six years in total), they may apply for British Citizenship (for which different qualifying conditions apply). There is also an "accelerated route" to permanent residency in two or three years if the Investor is prepared to invest £10 million or £5 million respectively, rather than the five-year route using £1 million.
Key changes
Many of the MAC's key recommendations in their February 2014 report have been implemented. The following key changes will be relevant to Tier 1 (Investor) Visa applications submitted on or after 6 November 2014:
- The current £1 million minimum investment threshold is being raised to £2 million.
- The full investment sum must be invested in Qualifying Investments rather than 75% of the sum under the current rules.
- The current requirement that the investment must be "topped up" if its market value falls below the minimum threshold is being removed; instead, Investors will only need to purchase new Qualifying Investments if they sell part of their portfolios and need to replace them in order to maintain the investment threshold. This is discussed further below where investments are sold, as a strict reading of the new rules would appear to give some counter-intuitive results.
- The existing provision under which the investment sum may be sourced as a loan from a UK financial institution is being removed.
Transitional arrangements
Transitional arrangements are being applied, meaning Tier 1 (Investor) migrants who have already entered the UK through the existing route before the changes are introduced will not be subject to them when they apply for extensions or for Indefinite Leave to Remain.
Implications and comment
The increase of the minimum threshold from £1 million to £2 million is the first increase in the minimum investment level since 1994. Although not insubstantial, in our view the high degree of flexibility and relatively small number of ongoing requirements for the Tier 1 (Investor) Visa will mean that it remains the most attractive option for high net worth persons wishing to relocate to the UK.
We welcome the removal of the requirement for the Investor to "top up" his/her overall investment if it drops below the minimum £1 million threshold. In our experience this has led most Investors to opt for a static portfolio comprised entirely of UK government bonds as opposed to taking more investment risk in the hope of higher returns.
The drafting of the new provisions still make reference to the Investor's portfolio of Qualifying Investments being "maintained". However, it is reasonably clear within the context of the new rules that "maintained" no longer refers to the value of the portfolio being maintained. We hope that the updated policy guidance will clarify this point.
Particular attention should be paid to the new rule which requires new investments to be made in the event that any investments are sold during the visa period. The rule provides as follows:
"If the applicant sells any part of the portfolio of qualifying investments during the specified continuous period of leave such that the price he paid for the remaining portfolio falls below the purchase price referred to in (i) above [£2 million], the shortfall is fully corrected within the same reporting period by the purchase of further qualifying investments."
(Paragraph 150 SC 16 October 2014 and paragraph 65C(a)(ii) of the new rules).
The way in which this rule is drafted would appear to give counterintuitive results, as it means that the sale of any part of the portfolio would require further investments to be added regardless of the portfolio value at the time of the sale.
For example, where the value of the Investor's portfolio has increased ("Scenario A"):
- Investor X is granted leave to enter the UK as a Tier 1 (Investor) under the new rules effective from 6 November 2014.
- Investor X makes an investment of £2 million in a single qualifying UK company ("UK Co"), the shares of which are each valued at £50,000 at the time of purchase (i.e. he purchases 40 shares).
- After six months, the shares in UK Co are valued at £75,000 each, meaning Investor X's portfolio is now valued at £3 million.
- Investor X wishes to realise some of the gains on his UK Co shares and so sells 10 shares for £750,000. Investor X's portfolio is now comprised of £2,250,000 of qualifying UK investments and £750,000 of uninvested cash.
- Under the new rules on selling investments, Investor X would need to purchase a further £500,000 of qualifying UK investments within the same reporting period, notwithstanding that the value of his portfolio is above £2 million. This is because the "price he paid" for the "remaining portfolio" (the remaining 30 shares) was £1,500,000.
In essence, under a strict reading of the new rules, the portfolio's 'base cost' must always be £2 million or over.
Looking at the same example but where the value of the Investor's portfolio has decreased ("Scenario B");
- Investor X is granted leave to enter the UK as a Tier 1 (Investor) under the new rules effective from 6 November 2014.
- Investor X makes an investment of £2 million in a single qualifying UK company ("UK Co"), the shares of which are each valued at £50,000 at the time of purchase (i.e. he purchases 40 shares).
- After 6 months, the shares in UK Co are valued at £25,000 each, meaning Investor X's portfolio is now valued at £1 million. At this point, no action or "topping up" is required by him notwithstanding that the value of his investments is below £2 million.
- Investor X wishes to reduce his exposure to the UK Co shares and so sells 20 shares for £500,000. Investor X's portfolio is now comprised of £500,000 of qualifying UK investments and £500,000 of uninvested cash.
- Under the new rules on selling investments, Investor X would need to purchase a further £1,000,000 of qualifying UK investments within the same reporting period. This is because the "price he paid" for the "remaining portfolio" was £1,000,000.
We look forward to the publication of updated policy guidance to see if the Home Office intended for the operation of the above new rule to operate as per the examples set out above.
It is also important to note that the new investments must be made within the same reporting period as the other investments were sold, rather than the next reporting period as is the case under the existing rules in relation to "topping up".
Additional compliance requirements
Although potentially not as significant as the other changes, a further change being introduced is that UK Visas & Immigration caseworkers are being empowered to refuse a Tier 1 (Investor) application if they have reasonable grounds to believe that:
- the applicant is not in control of the investment funds;
- the funds were obtained unlawfully (or by means which would be unlawful if they happened in the UK); or
- the character, conduct or associations of a party providing the funds mean that approving the application is not conducive to the public good.
Provision (i) is merely a repetition of the existing requirement. In respect of provisions (ii) and (iii), it will be interesting to see whether the updated policy guidance addresses either of these points.
Further consultations
In a written ministerial statement to Parliament, the Home Office has also indicated that it is carrying out further consultations on the types of investment that the Tier 1 (Investor) Visa route should encourage in order "to deliver real economic benefits and other improvements to the route". We expect the results of those further consultations are likely to be announced in 2015.
The February MAC Report concluded that the indirect consumption of the Investor (including real estate investments and associated taxation) of the Tier 1 (Investor) Visa route were of greater benefit to the UK than the direct investment itself. We expect that the removal of the "topping up" requirement will give Investors the confidence to invest more widely in UK companies, but given that portfolio valuations will still need to be evidenced, this is likely to predominantly increase investments in UK listed companies.
It will be interesting to see whether the further consultations lead to changes that might widen the investment requirement to allow other investment tools, such as pooled investments, Angel Investments, Government backed (e.g. public-private) and Venture Capital schemes, all considered in the MAC Report.
As for the "other improvements to the route", it remains to be seen whether recommendations, such as philanthropic contributions and restrictions on investments in gilts (both also considered in the MAC Report), might be introduced once the Government has evaluated the effect of the new Rules.
Applying within the current regime
People wishing to apply under the current £1 million investment regime should expedite their applications in so far as possible.
In order to ensure that the application will be considered within the current rules, the visa application needs to be submitted before 6 November 2014. The Home Office has provided that applications for leave to enter or remain in the UK under the Tier 1 (Investor) Visa route made before 6 November 2014 will be decided in accordance with current rules.
We expect that there could be a high demand for Super Premium appointments (and overseas equivalent) over the coming weeks due to the number of applicants wishing to be considered within the current rules, therefore making it even more important to act early.
How we can help
Wragge Lawrence Graham & Co LLP has a dedicated immigration team that regularly assists clients with the preparation of all applications for the Tier 1 (Investor) Visa and will liaise with the Home Office and your financial advisors throughout the process.
Our significant experience in advising clients on the Tier 1 (Investor) Visa route means we are well-suited to effectively adapt to the changes being implemented to ensure that your applications are successful.
Please contact our immigration team who are always open to your enquiries and ready to help you.