On 7 March 2019 the Home Office released its statement of changes setting out proposed changes to UK immigration rules. The statement contains the long-awaited details of changes to the Tier 1 (Investor) visa (the so-called 'investor visa'), which were announced in December 2018 shortly after the Home Office backtracked from its announcement that the visa was about to be suspended. The changes to the investor visa will come into effect on 29 March 2019.
While changes are also proposed to the Tier 1 (Graduate Entrepreneur) visa and the Tier 1 (Entrepreneur) visa, they are to be replaced with new 'start-up' and 'innovator' categories of visa. This article examines the proposed changes to the investor visa.
What is the Tier 1 (Investor) visa?
The investor visa was originally introduced to encourage wealthy people from outside the European Union to invest and eventually settle in the United Kingdom.
Among other requirements, applicants must invest at least £2 million in certain qualifying UK investments, which include UK government bonds, share capital or loan capital in active and trading UK-registered companies. Investment in property investment, management or development companies is not permitted.
An investment of £2 million allows an individual to apply for indefinite leave to remain in the United Kingdom after five years, an investment of at least £5 million reduces that period to three years and an investment of at least £10 million reduces it still further to two years.
What are the proposed changes?
As of 29 March 2019, applicants for an investor visa will need to have held the funds they will invest in the United Kingdom (£2 million or over) for at least two years before making their application. If they have not held the funds for at least two years, they will have to provide evidence of the funds' source as part of the application. This does not change the substance of the existing rule – rather, it extends the required pre-investment holding period for funds from 90 days to two years. However, in practice this is likely to create a rise in applicants needing to disclose to the Home Office the source of funds.
Under the existing rules for investor visa applications, applicants must open a UK bank account to make their investment before making an initial application. This requirement is being tightened so that UK banks will need to carry out all due diligence and know-your-client checks on an applicant and provide a statement confirming that these have been done in the bank letter required for the application.
No doubt this is in response to the practice of some financial institutions offering 'pre-accounts' to applicants, which involve opening a bank account before completing due diligence checks on applicants.
In order to increase the economic benefits of UK investments qualifying under the investor visa, the following changes are also being made:
- Investments in UK government bonds will no longer qualify as permitted UK investments under the visa. This is unsurprising as the Home Office had indicated that it regarded such investments as bringing no meaningful economic benefits to the United Kingdom. This change is therefore intended to incentivise investor visa applicants to make other forms of investment which have a greater need to attract additional investment funds.
- New rules relating to the use of intermediary vehicles will be introduced to increase transparency with regard to the investment of applicants' funds. Such vehicles will be required to be regulated by the Financial Conduct Authority and applicants will need to provide evidence of the final investment destination and how funds are transferred to this destination. This will apply regardless of the length of the chain of intermediary vehicles.
- The rules regarding the definition of 'active and trading' UK companies are being tightened. Stronger evidence will be required that a company has a substantial presence in the United Kingdom, including having to be registered with Companies House and Her Majesty's Revenue and Customs for corporation tax and pay-as-you-earn purposes. Interestingly, the company must have at least two UK-based employees who are not its directors.
- The rules will be clarified to confirm that "price of the investments" means the price actually paid for investments rather than their face value. This is to ensure that an applicant has actually invested at least £2 million in the United Kingdom as the rules require.
- Pooled investment vehicles may be able to qualify as permitted UK investments under the visa, provided that the vehicles receive funding from a UK or devolved government department or one of its agencies (eg, the British Business Bank or the Scottish Investment Bank). This is because such vehicles will have been assessed as being of benefit to the UK economy by the department or agency providing the funding. Other types of pooled investment will continue to be excluded as the Home Office cannot be satisfied that the applicants' funds are being invested to the benefit of the UK economy.
Transitional arrangements will be introduced to ensure that the changes proposed to the investor visa do not adversely affect investors who entered the visa category under the rules in place before 29 March 2019. The transitional rules will mean that the current rules continue to apply to existing investors until 5 April 2023 for extension applications and 5 April 2025 for settlement applications.
However, the proposed changes will apply to any extension and settlement applications made after 5 April 2023 or 5 April 2025, respectively, by pre-29 March 2019 investor visa holders. The element of retrospectivity which this introduces for existing investors in this category will primarily affect those who:
- are unable to satisfy the additional requirements for indefinite leave to remain and need to apply for further leave to remain; or
- simply do not wish to apply for indefinite leave to remain.
However, there appears to be a potential internal contradiction within the statement of changes regarding investments in UK government bonds. One statement appears to suggest that investments in UK government bonds will not qualify as UK investments from 6 April 2023 and 6 April 2025 for investors under Tables 8A and 9A of the Immigration Rules Appendix A, respectively. These parts of the Immigration Rules apply only to investors who entered the visa category on or after 6 November 2014 (when the investment threshold increased to £2 million from £1 million). There is no such equivalent statement applying to investors under Tables 8B and 9B of the Immigration Rules Appendix A (ie, those investors who entered the visa category before 6 November 2014).
It could be inferred that those investors should not be affected by the proposed changes to the visa if they wish to apply for leave to remain after 5 April 2023 or settlement after 5 April 2025. However, another part of the statement of changes throws this into doubt with a general statement that Paragraph 65(f) of the Immigration Rules Appendix A will be amended so that UK government bonds will no longer count as UK investments for applications on or after 6 April 2023 and 6 April 2025. The problem with this is that Paragraph 65(f) applies to Tables 8A to 9B (inclusive) of the Immigration Rules Appendix A, meaning all existing investor visa holders, including those who obtained the visa before 6 November 2014. The natural assumption is to chalk this inconsistency down to poor drafting, and it remains to be seen whether this will be rectified when the Immigration Rules are updated on 29 March 2019.
When the Home Office initially announced that it would be reforming the rules for an investor visa, its proposals included the introduction of an audit process, involving a detailed audit of an applicant's financial and business interests. This proposal was widely regarded as introducing an extra burden for applicants that would be of dubious value given significant changes made to the rules in November 2014 with the aim of improving transparency and vetting of applicants. Therefore, it is welcome that the Home Office has dropped this proposal in the new statement of changes.
Nonetheless, the proposed changes are significant and clarity is needed with regard to the application of the transitional rules discussed above.
In the meantime, anyone who is currently making an application for an investor visa may wish to complete the process before 29 March 2019, if possible. Anyone who holds an investor visa and may wish to apply for an extension of that visa or for indefinite leave to remain at some point in the future should seek advice as to their likely position under the new rules.
For further information on this topic please contact Daniel Ugur or Alfred Liu at Forsters LLP by telephone (+44 20 7863 8333) or email ([email protected] or [email protected]). The Forsters LLP website can be accessed at www.forsters.co.uk.
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