Business Investment Relief (BIR) for non-UK domiciliaries (Non-doms) – Part two
The previous article focused on the DNA of BIR. This next part considers a couple of potential ideas on how the relief might be super charged!
Overlap with EIS and Seed EIS
It is worth noting that a BIR investment might also qualify for Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) relief. This would provide the investor with substantial tax savings if the investment was structured accordingly.
For example, if a UK resident but non-UK domiciled individual makes a taxable remittance of foreign income to the UK of £250,000, this would potentially be taxable at the top rate of tax of 45% and tax due of £112,500.
However, if the funds remitted are invested such that BIR is available then the remittance, in the first instance, would be tax-free. However, if the investment also qualifies for EIS or SEIS investment, further Income Tax Relief could be due at either 30% or 50% of the amount invested.
So, picking up the above, a qualifying EIS investment would also secure £75,000 (£250,000 x 30%) of tax relief. Therefore the total tax relief would total £187,500 (£112,500 plus £75,000) on the investment of £250,000. This amounts to 75% tax relief.
Of course, this would be increased if the investment qualified for SEIS, which attracts income tax relief of 50%
It should be noted that, although an EIS or SEIS investment is almost certainly going to qualify for BIR, a BIR investment could quite easily not qualify for EIS and SEIS. One needs to be very careful here.
Using shares or loan note as UK collateral?
Previously, it had been common practice for a non-UK domiciled individual to use his foreign income and gains as collateral for UK loans. It had been agreed that this did not result in a taxable remittance.
However, that was then. HMRC rather inconveniently did a major volte face on their interpretation of the legislation. Therefore any new transactions of this nature will result in a tax charge. Historic arrangements need unwinding in due course.
Say, a non dom has a pot of ‘idle’ money sitting offshore that might trigger a tax charge on remittance. What if he wants to use this to acquire a main residence? Does BIR provide an option?
Well, he could invest in a BIR investment. As we have seen, this would not trigger a tax charge. Let’s say he receives a loan note in respect of his investment.
There seems to be no problem in him offering this loan note as security for a loan in conjunction with his property purchase. In such circumstances, no taxable remittance would seem to be triggered.
BIR is a really attractive relief for Non Doms who use the remittance basis of taxation and are looking at opportunities to invest in the UK.
The relief is also very flexible and will facilitate an investment in the non-Doms family company, provided any benefits are received on a commercial basis etc.
Another bonus is that the relief may be used in conjunction with other UK enterprise reliefs such as the Enterprise Investment Scheme (EIS) and Seed EIS meaning that additional tax benefits can be obtained.
If you have any queries or would like any assistance in relation to BIR then please let us know.