Business Investment Relief (BIR) is available to non-UK domiciled individuals who are assessed to UK tax on the remittance basis. This valuable relief exempts from UK income tax or capital gains tax any foreign income or capital gains remitted to the UK which are used to make a qualifying business investment within 45 days.
A qualifying business investment includes either a subscription for newly issued ordinary or preference shares, or a loan, in a “target company”. From 6th April 2017, a qualifying investment will also include the acquisition of existing shares in the target company.
The target company must be an unquoted trading, stakeholder or holding company which meets strict conditions for eligibility. Companies listed on the Alternative Investment Market are treated as unquoted. From April 2017 shares in eligible trading/stakeholder hybrid companies will also be available for BIR.
For the purposes of the relief, HMRC’s definition of “trade” includes activities treated as trade for corporation tax purposes, as well as a business which generates income from land or property and activities involving research and development which are intended to lead to a commercial trade.
BIR will not be available if the investor or persons connected with the investor, directly or indirectly receive, expect to receive, or are entitled to receive, a benefit from the target company except when this is received in the ordinary course of business (e.g. a salary, dividends paid out of profits, loan interest etc.). Recent changes in the legislation mean that from April 2017, only benefits which are directly or indirectly related to the investment will trigger a claw back of the relief.
The relief is not automatic and must be claimed by the first anniversary of the 31st January following the end of the tax year in which the foreign income or gains are brought to the UK for investment, e.g. for foreign income and gains brought to the UK in the year ending 5th April 2017, the deadline for making a BIR claim is 31st January 2019.
Any foreign income and gains which were used to make the investment, will become taxable if a potentially chargeable event takes place and the appropriate mitigation steps are not taken. Potentially chargeable events include, amongst others: the target company ceasing to be eligible; or the investor disposing of the qualifying investment. The mitigation steps must in most cases be taken within 45 days and include removing the sale proceeds offshore or reinvesting them in another target company.
As target companies may also include companies which qualify for the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) relief, it is possible to combine the reliefs to maximise the available tax breaks.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.