Non-domicile taxation: Business Investment Relief
Published 5 December 2016
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This publication is available at https://www.gov.uk/government/publications/non-domicile-taxation-business-investment-relief/non-domicile-taxation-business-investment-relief
Who is likely to be affected
These changes will affect anyone who is a non-UK domiciled individual who qualifies to use the Business Investment Relief (BIR) scheme.
Policy objective
The measure expands the scope of BIR and makes it easier and more attractive to potential investors to bring their money from overseas to invest in UK businesses.
Background to the measure
At Autumn Statement 2015 the government announced it would consult on ways BIR could be changed and expanded to increase investment in the UK. Some of the rules governing the relief were seen as complicated and discouraged investment. The proposed changes to the rules of the scheme seek to rectify this and so seek to encourage further investment in UK business. They also seek to clarify the rules where these were seen to be unclear.
A consultation on the proposed changes commenced on 19 August 2016 and ran for 8 weeks before closing on 20 October 2016.
Changes arising from the consultation will be announced in new published legislation on 5 December 2016.
Detailed proposal
Operative date
The measure will have effect for any new BIR investments made on or after 6 April 2017.
Current law
The current legislation for the BIR scheme can be found at sections 809VA to 809VO of Income Tax Act 2007 (ITA) 2007.
Proposed revisions
Legislation will be introduced in Finance Bill 2017 to add a new trading/stakeholder hybrid company to the qualifying list of target companies.
New rules will extend the start-up period for a company which is carrying on a commercial trade or is preparing to do so from the current 2 years to 5 years.
The revised legislation will remove any reference to an involved company in the extraction of value rules. Currently this rule is breached if an investor receives any benefits directly or indirectly from the target company or any company associated with it, whether or not the benefit is connected to the investment. This change means that the legislation will instead treat the rule as having been breached where a benefit is received from anyone in circumstances directly or indirectly attributable to the investment.
The new rules will extend the definition of a qualifying investment to also make it available on the acquisition of existing shares as well as on the acquisition of new shares in qualifying target companies.
When BIR was introduced, the rules specifically prevented extending the relief to investments in partnerships. It has been the government’s position from the outset that this exclusion extends to corporate members of partnerships and HM Revenue and Customs (HMRC) have consistently refused claims for BIR on investment in such corporate members. Consultation response has suggested that the legislation is not clear on this point. The legislation which defines a trading company for BIR purposes has now therefore been amended to clarify the position on corporate partners. The changes make clear that a company which is a partner in a partnership is not to be regarded as carrying on the trade of the partnership, meaning that unless the target company is carrying on a commercial trade in its own right, it will not qualify for BIR.
Finally, changes to the grace period for a potentially chargeable event will enable any income or gains to remain in a company for a period of up to 2 years after the date upon which the investor becomes aware that the target company has become non-operational.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
|---|---|---|---|---|---|
| - | nil | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is not expected to impact on family formation, stability or breakdown.
This measure is expected to improve access to the BIR for non-UK domiciled individuals on the remittance basis of taxation. Since BIR was launched in April 2012 it has been used by around 200 to 400 individuals each year.
Equalities impacts
Section 149 of Equality Act 2010 and relevant Northern Ireland legislation have been considered and the measure will have no adverse equality impacts.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations’ administrative burden.
This measure is aimed at non-UK domiciled individuals on the remittance basis of taxation and is expected to benefit UK businesses by improving access to the Business Investment Relief.
Operational impact (£m) (HMRC or other)
There will be no significant operational impact on HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
Monitoring and evaluation will take place through HMRC regular contact with affected taxpayers and their representatives as well as other channels.
Further advice
If you have any questions about this change, please contact Aidan Close on Telephone: 03000 585255 or email: aidan.close@hmrc.gsi.gov.uk.