How ‘resident non-doms’ can bring money into the UK tax-efficiently, using Business Investment Relief
People who are UK-resident but not UK-domiciled can face significant tax penalties if they move income or gains earned overseas into the UK. It is worth considering utilising Business Investment Relief particularly when combined with other tax reliefs.
This is only a basic summary of the relevant rules. We encourage you to speak with a financial or tax adviser before investing so that your personal circumstances can be considered.
Business Investment Relief (BIR) exists to encourage wealthy resident non-doms to invest in the UK. It works by allowing offshore income and gains to be transferred into the UK without triggering a tax charge, as long as the funds are invested into qualifying investments within 45 days.
There are various criteria to determine if an investment qualifies for BIR, but the basic rule is that the money brought onshore must be invested into a trading business, which should normally be a private limited company.
When the investor eventually sells their shares, the amount originally brought into the UK must be returned offshore or invested into another BIR-qualifying company in order to avoid a tax charge. But any gains made on the investment can remain in the UK, with no requirement to re-invest it.
Combining BIR with EIS reliefs
Companies that qualify for the Enterprise Investment Scheme (EIS) will also often qualify for BIR, and it is possible for investors to benefit from EIS tax reliefs and BIR on the same investment. EIS tax reliefs include income tax relief of 30% of the amount invested and tax-free gains subject to certain conditions.
The following case study shows how this might work in practice:
Mr Roberts has been living in London for the last five years, but he is originally from Australia and he is not UK domiciled. During a successful international career, he has built up a portfolio of business interests and investments outside the UK that generate significant income.
He now wants to bring £100,000 of his overseas income into the UK, not least to contribute to the expected cost of his children’s education in the future.
Without tax planning
When Mr Roberts remits £100,000 to the UK, he becomes subject to an immediate tax charge of 45%. He invests the remaining £55,000 into a fund, selling his holding four years later when his daughter is due to start university. The investment yields a gain of 20% (£11,000), which is subject to Capital Gains Tax at 20%, leaving him with £63,800.
Using BIR and EIS
Mr Roberts remits £100,000 to the UK and invests the full amount into an EIS and BIR qualifying investment, within the 45 day permitted limit. No tax is due on the remittance, and Mr Roberts is able to claim £30,000 of income tax relief. If the investment is held for three years before being sold and then yields a gain, there will be no Capital Gains Tax to pay. Assuming a gain of £20,000, Mr Roberts could send his original £100,000 investment back offshore to prevent triggering a tax charge. He uses the £50,000 remaining (£30,000 income tax relief and £20,000 gain on the investment) for his daughter’s education.
Although it is sometimes possible for resident non-doms to combine EIS investments with BIR, it is best to speak to a specialist adviser such ourselves. If you would like to find out more about how this might work for you, please contact Marie on 01189 347920 or via our Contact page.