If you are resident in the UK but are non-UK domiciled (a ‘non-dom’) and you want to bring your overseas money into the UK to make an investment and NOT pay tax in the process then Business Investment Relief is your answer.
With the top rate of Income Tax currently at 45% the UK Government is effectively giving non-doms a subsidy of 45% on their UK investments. Other tax reliefs (for instance, using the Enterprise Investment Scheme) are also available when making a qualifying investment using offshore monies remitted to the UK.
Business Investment Relief applies to foreign income and gains for anyone that falls into the category of being a UK resident but who is non-UK domiciled.
One of the key benefits of being a non-dom is that it allows you to avoid paying income or capital gains tax on investments which are kept overseas as long as you do not bring the income or the gains into the UK. In addition, you can also avoid Inheritance Tax on property held overseas.
But what if you do decide to bring it into the UK because you believe you have found a good investment opportunity? You obviously want to avoid paying UK tax on the income or gains you have made overseas if at all possible. This is exactly what Business Investment Relief does as it allows offshore resources which were previously excluded from the UK to be now invested in the UK tax free.
Ten Point Summary of Business Investment Relief
- It applies only to individuals who are considered to be UK resident but non-UK domiciled.
- It allows non-doms to bring overseas income and gains into the UK tax free. It also allows you to borrow money overseas then use that money to make the UK investments and if this loan is repaid with the future income and/or gains taxable on the remittance basis those repayments will also be considered as tax free by HMRC.
- Investments in publicly quoted companies are excluded although many companies quoted on the Alternative Investment Market will qualify. Investments are permitted in virtually any private limited company (i.e. not non-corporate entities such as partnerships) carrying out a business and investment into property development or property with a rent is allowable.
- The investment must be in a company in which the investor or associates are involved.
- The investment must be in shares or loans and no related benefit can be received such as property, goods or services, money or capital. The investor can extract value from the investment as long as it is on an arms’ length basis and is in the ordinary course of business such as a salary.
- When the investment is sold then any gain will be subject to UK Capital Gains Tax but the original funds can be taken back offshore again (within a 45 day or 90 day time period) in order to avoid being taxed but HMRC are able to extend these time periods where required such as ‘lock-in’ periods on a flotation.
- Funds must be invested within 45 days of the money being brought into the UK for the purposes of the investment.
- Business Investment Relief must be claimed by 31st January following the tax year of remittance.
- There is no limit on the amount of Business Investment Relief that is available.
- HMRC will provide advanced clearance in relation to a proposed investment.
Other Tax reliefs
Other reliefs are also available, for instance:
- EIS relief: income tax relief at 30% on up to £1m of investment and Capital Gains Tax relief on gain.
- SEIS relief: income tax relief at 50% and Capital Gains Tax relief on gain.
- VCT relief: income tax relief at 30% on up to £200,000 investment and Capital Gains Tax exemption.
- Entrepreneurs relief: 10% Capital Gains Tax relief on up to £10m of gains.
- Business Property relief: Inheritance Tax exemption after investment held for two years.
This bulletin is intended to provide general information only and is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. Before making any decision or taking any action which may affect your tax or financial position you should consult a qualified professional adviser.
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