We are often asked about Business Investment Relief. One of the most common questions is what is Business Investment Relief and what qualifies. We asked Gavin James, in our Tax team to tell us more.
Business investment relief (BIR) was introduced to boost investment in the UK by incentivising non-domiciled individuals claiming the remittance basis to invest in UK assets using funds that would otherwise be taxable when remitted.
Investments qualifying for relief are the acquisition of shares in or providing a loan to a private UK trading or investment company. The key condition for the investment to be qualifying is that the investor does not ‘extract value’ from the company. Withdrawing a market rate salary and dividends are not deemed as extractions of value, whereas personal benefit from the company or use of its assets (e.g. a property) would be.
Implications of getting it wrong.
When an investment is made and the relevant conditions are initially met but the investor ‘extracts value’ later, the entire amount invested will be taxed as remitted income. This could prove to be a very costly error as proven in HMRC’s success in the D’Angelin case where the taxpayer’s appeal was rejected by the First-tier Tribunal.
Business Investment Relief – The D’Angelin case
In this case, the individual was a non-domiciled, UK tax resident and had invested £1.5m of his non-UK sourced income into a UK company with a claim for BIR entered on his tax return. Following its inception, the company provided a director’s loan account to the individual to fund personal expenditure, resulting in an overdrawn balance of £71,515.
There was no formal loan agreement in place and the company’s accounts reflected that the loan was non-interest bearing – this led to HMRC’s initially enquiry into the income tax return for omitting the loan as a taxable benefit in kind, and was the catalyst for HMRC going further to challenge the individual’s claim for BIR on the basis that the informal loan arrangement was an ‘extraction of value.’ The First-tier Tribunal agreed with HMRC’s views and rejected the taxpayer’s appeal.
Business Investment Relief – Conclusion
Business investment relief can provide a welcome opportunity for non-domiciled individuals to utilise their non-UK sourced income in a tax efficient way. As with all claims for tax relief, careful attention to detail needs to be paid to qualifying criteria and disqualifying events.
The taxation of non-domiciled UK tax residents is considered a focal point of the Labour government’s tax policy and they look certain to make changes to the regime in the coming tax years following their victory in the recent General Election.
If you require assistance or advice in respect of making claims to HMRC and residence and domicile issues, the RPGCC tax team are here to help. You can contact us on 020 7870 9050 or email us and a member of our team will get back to you as soon as they are free.
