The Migration Advisory Committee (MAC) has published its report on the investment thresholds and economic benefits of the Tier 1 (Investor) Visa with its recommendations for significant changes. We set out below a reminder of the current position, together with a summary of the proposed changes.
The UK has, for the best part of two decades, offered a route for high net worth individuals and their families to reside in the UK, qualify for settlement and, later, apply for British Citizenship.
The current position
The Tier 1 (Investor) route was established for individuals prepared to make a substantial investment of at least £1 million in UK Government bonds or shares/bonds in active and trading UK companies (Specified Investment). In return, the Investor is permitted to live, work or study in the UK with very few restrictions and apply for permanent residency (known as indefinite leave to remain or settlement in the UK.
Put simply, provided the Investor makes and maintains their £1 million investment, spends no more than 180 days outside the UK each year and passes the Life in the UK Test, they will be eligible to apply for settlement after five years (accelerated settlement is possible after two or three years if the Investor is prepared to invest £10 million or £5 million respectively).
Migration Advisory Committee's report on the Tier 1 (Investor) route
On 9 October 2013, the Minister for Immigration commissioned a report on the investment thresholds and economic benefits of the Tier 1 (Investor) route and asked the MAC to consider whether the Tier 1 (Investor) investment thresholds currently in force are appropriate to deliver significant economic benefits to the UK.
On 25 February 2014, the MAC published its findings in a report that concluded that the Tier 1 (Investor) route has been, and continues to be, an important mechanism to demonstrate that the UK is open for business. They consider the UK Tier 1 (Investor) Visa to be a sufficiently attractive offer vis-a-vis other countries, including those which offer citizenship at a relatively low cost. However, they are much less certain of the benefits afforded to the UK by the investments made within the current rules.
The MAC has therefore recommended a series of reforms which they believe would deliver clearer benefits to the UK economy while ensuring that the Tier 1 (Investor) route remains attractive in an increasingly competitive international immigration market.
Key recommendations
The MAC's key recommendations are as follows:
Increase in the minimum investment threshold
The minimum investment threshold should be increased from £1 million to £2 million. This recommendation was widely anticipated since the investment threshold has not changed since 1994.
Expansion of permissible investments
Given that Tier 1 (Investor) Visa Investors are effectively pushed into a passive gilt portfolio by the requirement to maintain their minimum investment whatever the prevailing market conditions, the requirement for Investors to invest in Specified Investments is overly restrictive and offers little direct benefit to the UK.
The MAC therefore recommends that the current constraints on permissible investment instruments be relaxed so as to permit wider investment activity (for example, investment in private companies, Venture Capital Schemes, Angel Investments, Infrastructure Bonds, property development, pooled investments and UK operated funds for businesses).
We welcome this recommendation.
Removal of topping up requirements
The MAC recommends that the requirement to top up an investment where the value falls below the relevant investment threshold should be removed. This in turn would mean that the requirement to provide quarterly valuations would no longer be necessary. Instead, Investors would simply need to provide evidence that they have made the required investment at the relevant point and that the investment has not been deliberately withdrawn by the Investor. Provided the rules around "deliberate withdrawal" can be appropriately framed, we would also welcome this change on the basis that it will encourage more dynamic investment behaviour.
Limiting or prohibiting investment in UK Government Bonds (gilts)
The MAC notes that the UK economy gains little benefit from investments in gilts as they are simply a loan to the government which is repaid at a later date. They therefore recommend that the government considers whether to prohibit or limit investment in gilts.
We consider a limitation on the level of gilt investment to be a reasonable suggestion (in conjunction with the changes suggested above).
Removal of permission to source investment funds by way of a loan
The MAC notes that the option to source investment funds by way of a loan from a registered UK financial institution is not used often. They observe that this is largely due to the reluctance of UK financial institutions to lend for such purposes.
The MAC therefore recommends that the provision permitting investment funds to be sourced by way of a loan should be removed. In practice, the loan route is rarely used so we see this as uncontroversial.
Introduction of a new premium route
The MAC notes that the higher investment thresholds (£5 million and £10 million) are rarely used by Investors as the incentives to do so are insufficient to encourage higher levels of investment in return for accelerated settlement.
They therefore recommend that a new premium route should be introduced in place of the current accelerated routes. The key features of the proposed new premium route are:
- Accelerated settlement
ettlement would be accelerated with a qualification period of 2 years for the main applicant.
- Relaxation of residence requirements
An individual would only need to be resident in the UK for a period of 90 days per annum, rather than 185 days as is currently the case. However, the MAC also recommends that the government should consider making provisions to ensure that the Investor meets HMRC residence requirements in order that his UK based income remains subject to UK taxation.
- Auctioning of premium Tier 1 (Investor) Visas
A limited number of premium route visas, perhaps 100, would be issued each year, with interested applicants invited to submit a single, sealed bid for those premium route visas made available.
MAC further recommends that the government sets a reserve price of £2.5 million. A bid of £2.5 million would be comprised of an investment of £2 million by the applicant (as under the standard route) plus a gift of £500,000 donated to the government to be placed in a general “good causes fund.” Any excess above the reserve price should also be placed in this fund so that the surplus is equivalent to a philanthropic contribution.
It is important to note that a successful bid would not guarantee automatic entry clearance. Successful applicants would remain, as is the case now, subject to strict due diligence checks by the government and financial institutions.
The recommendations for the expansion of permissible investments, removal of topping up requirements, accelerated settlement and relaxation of residence requirements under the premium route are potentially very attractive changes, particularly for migrants looking for greater investment freedom.
The auction suggestion is clearly the most controversial and in our view it is likely to introduce an unwelcome level of uncertainty into the application process.
However, introducing a philanthropic element to the required investment in return for additional benefits, such as relaxed residency rules, is not completely without merit and would likely prove popular provided the gift element is pitched at the appropriate level and the Investor's dependants are also able to benefit from accelerated settlement (which is not currently the case).
Implications
While would-be applicants may be tempted to wait and see what, if any, changes the government will implement, we would advise those who are unlikely to be able to meet a higher investment threshold to consider expediting their applications within the current regime.
Implementation
While specific dates have not been released, it is our understanding that the Government is unlikely to incorporate the MAC's recommendations (those which they agree with) sooner than October 2014.
However, until the Home Office issues a statement to this effect, it is not possible to know which of the recommendations will be enacted, or indeed when.
How we can help
Wragge Lawrence Graham & Co has significant experience in advising clients on the Tier 1 (Investor) route.
We can assist you with the preparation of all applications for the Tier 1 (Investor) Visa and liaise with the Home Office and your financial advisors throughout the process.