Business Investment Relief

Relevant Foreign Income or Gains

Non-UK source income or chargeable gains (“relevant foreign income”) are remitted to the UK if they are:

Primary purposes

The investor

The investor must be a non-domiciled UK resident or “relevant person” with offshore funds to invest.

Relevant Person

The conditions relating to “relevant person” connected to the investor have wide scope, with no exclusions to the relief for individuals (“relevant persons”) “connected” with the investee company. This means that the investment can be:

• A wholly owned company of the investor;
• The employer company of the investor;
• An investment by the individual’s spouse, a trust of which they are a settler, or a non-UK resident company of which they are a shareholder.

All these qualify for the relief since the remittance of the funds can be by an individual or a “relevant person”. There is also no requirement for the investee company to be UK incorporated.

Case Study 5: Two-year AND 45-day rule and drawing a salary "at arms' length"

In March 2012 Renata was invited to invest some money in a private limited company. The company expects to start trading commercially in the near future. Renata has been a remittance basis taxpayer for a number of years and decides to invest £500,000 of her foreign income and gains. On 6 April 2012 Renata transfers the money to her UK bank account and on 1 May 2012 (25 days later) she makes her investment in the company. In return for this investment Renata is issued with shares in the company and she becomes a working director of the company, receiving a salary at a market rate.

The company commences trading on 1 June 2012. The investment was made within 45 days of Renata bringing her foreign income and gains to the UK and the company began commercial trading within two years of the investment having been made. As both these conditions are satisfied, Renata’s foreign income and gains qualify to be treated as not remitted to the UK.

Renata is in receipt of a salary for her work as a director and, because the company is profitable, she and other shareholders are paid a dividend on 31 July 2013. These payments would reasonably have been expected to be made to any other similar director and shareholder of the company and so are not benefits of either property, goods or capital. Renata’s foreign income and gains continue to be treated as not remitted to the UK.

Can the investment be combined with other investment initiatives?

BIR investments can be combined with other business initiative schemes such as the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), if the intended target business meets the requirements. Read more about SEIS or EIS, and R&D here. The BIR investment can also replace existing funding from UK sources.

Case Study 6: Capital Gain and failing to take funds offshore

Adam calculates that he is able to make a tax deposit of up to £325,000 in respect of a capital gain that accrued on a partial disposal of a qualifying investment made entirely from his foreign income; he makes a tax deposit of the full allowable amount. A few months later, realising that his final Capital Gains Tax liability will not be this large because of losses, Adam withdraws £120,000 and immediately takes it offshore. When Adam submits his tax return his final CGT liability is £198,000. He instructs HMRC to use the tax deposit to settle this liability, and requests return of the balance of £7,000. He uses the refund to buy a jet ski in the UK. As Adam has failed to take the surplus tax deposit (of £7,000) offshore, the £7,000 foreign income is treated as having been remitted to the UK.

Case Study 7: Eligible target investment company

Franco is a remittance basis taxpayer who intends to invest £100,000 of his foreign income and gains in SLK Limited, a company which produces electronic components for a well known car manufacturer. The company is a private limited company not listed on a recognised stock exchange and is carrying out a commercial trade. SLK is therefore an eligible trading company for the purposes of BIR.

Case Study 8: staging or “drawing down” the investment

Sonia is a remittance basis taxpayer who has decided to use some of her foreign income to make a qualifying investment in a target company. She makes her investment in the form of a £1 million loan. On 1 March 2013 a loan agreement was signed and the target company drew down an initial instalment of £250,000 on 31 March 2013. The balance of the loan remains offshore. Sonia has invested the £250,000 of her foreign income in the target company within 45 days of bringing the money to the UK. The funds are treated as not remitted to the UK, provided she makes a claim for the relief for this initial instalment by 31 January 2015. Sonia will need to make further claims to relief whenever the company draws down further amounts under the loan agreement.