Tier 1 visas, commonly known as Golden Visas, have become a big topic for the wrong reasons. It was declared that the scheme would no longer go ahead from 6 December, due to the introduction of the new scheme to be opened in 2019. However, this decision was reversed almost immediately. So, where does this leave the UK economy?
Tier 1 Introduction
In 2008, the Tier 1 visa scheme was introduced, to tempt wealthy foreign citizens to put their money into the UK. By investing a minimum of £2 million in UK Government bonds, share capital or loan capital in active and trading UK companies, the foreign citizen is able to stay in the UK at least 3 years and 4 months, along with rights to work within their own business. Upon the completion of their visa, they can also apply for a two-year extension.
In comparison to other ways of attaining a UK visa, the Tier 1 scheme has shown to be a more attractive method for the wealthy, living outside the EU. This due to the procedure being a lot faster than other methods and gives living rights to the UK a lot quicker.
There have been over 1,000 visas granted up to the year September 2018. While the scheme was originally billed as a key strategy for driving UK inward investment, the results have been somewhat mixed. Exactly how much of applicants’ money has been invested in UK businesses as opposed to other types of assets has come under scrutiny.
Tier 1 scheme criticisms
There have been criticisms about the restrictions over what applicant’s money is used on, due to it being too lenient. For instance, the £2 million sum can currently be invested in gilts, or UK Government bonds, which are essentially loans and the money can be retracted once the visa is granted. The key issue with this is that no capital gets invested into the UK businesses and the interest payable means that the government tends to lose money on them in the long term.
Other schemes currently exist which grant citizenship as opposed to visas. Several have come under fire for facilitating illicit activities, such as money laundering and tax evasion. In 2014, the UK joined a number of nations in agreeing to an Automatic Exchange of Information process, which allows tax authorities around the world to work together to combat tax evasion.
A consultation on this matter was published in February 2018, requesting for increased transparency around such schemes. This appears to be a major concern within the UK as it is not clear what controls are in place to monitor where money is being invested or measures to check if it has come from a legitimate source.
Changes to the tier 1 scheme
Changes to the scheme were made on 6 December:
- Gilts will no longer be a qualifying investment and investments have to be made into unlisted trading companies.
- Pool investments will be created as an alternative placement for applicants’ funds, which will go towards financing selected SMEs across the country.
- All applicants will need to provide a comprehensive audit from an independent, UK-registered auditor, proving the legitimacy of their income sources.
- All applicants will have to prove that they have had full control of the £2 million they are investing in the system for at least two years prior to making the investment.
These changes have been made in order to bring a more due diligent process. The fact that investors will no longer be able to invest in Government bonds is good news for owner managed businesses, and could provide a much-needed stimulus for the UK economy. However, the system changes were then pushed back to 2019, which led to concerns that the move could result in a legal challenge.
The choice to amend the scheme was, however, the right choice and it is important that various consultations take place, which includes the input of audit professionals. Moreover, any important changes to immigration policy should be implemented progressively, and with prior notice. By doing so, it allows investors sufficient time to prepare accordingly.
Given the current climate of uncertainty in the UK ahead of Brexit, suspending the Tier 1 visa scheme would have sent out the wrong message to the rest of the world, and discouraged inward investment at a critical time. This could have led to a bad reputation on the UK, as a place to do business. Facing economic uncertainty, it is crucial that the UK is seen to be open for business and that legitimate investment is not only welcomed, but encouraged.
The current lack of clarity surrounding the scheme has caused some confusion among potential investors. In order to maximise the number of successful applications and ensure that they are completed correctly, it is essential for would-be investors to seek professional advice at an early stage.
For more information on the Golden Visa reform please contact Tim Humphries private client and corporate tax specialist on +44 (0)207 4651 923 or THumphries@menzies.co.uk.