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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Exemptions: Business Investment Relief: Qualifying investments - overview

A qualifying investment (s809VC ITA2007) can be made by either:

  • obtaining newly issued shares in, or
  • making a loan (secured or unsecured) to

a target company [see RDRM34340]. The shares and rights under a loan forming the subject of the investment are referred to as “the holding”.

To qualify for relief the investment must meet two qualifying conditions - Conditions A and B. [See RDRM34340 and RDRM34360]

Shares may be ordinary or preference and the reference to shares includes any securities that may be held in the target company. (s809VC(6) ITA2007)

Example 1
Lydia, a remittance basis taxpayer, makes an investment of £50,000 of her foreign income in a target company. In exchange for the investment the company director transfers 100 of his shares in the company to Lydia. This is not a qualifying investment as Lydia has obtained shares that were originally issued to somebody else and are not newly issued to her.  

Where a relevant person enters into a loan agreement which authorises the company to draw down separate amounts over a period of time, the individual cannot claim business investment relief on the entire loan on the basis of the agreement. Instead, each amount drawn down is treated as a separate loan and a separate investment. (s809VC(7) and (8) ITA 2007)

Example 2

William is a remittance basis taxpayer who decided to use some of his foreign income to make a qualifying investment in a target company, Company A. He makes his investment in the form of a £1 million loan.

On 1 March 2013 a loan agreement is signed. Company A draws down an initial instalment of £250,000 on 31 March 2013. The balance of the loan remains offshore. Company A subsequently draws down the following amounts:

£100,000 on 12 August 2013

£250,000 on 21 September 2013

£150,000 on 21 April 2014

£250,000 on 29 December 2015

Each of the separate draw downs has been invested in Company A within 45 days of bringing the money to the UK. The funds are treated as not remitted to the UK, provided William makes a claim for the relief of the initial and subsequent instalments. For example William will have to make a claim for the initial instalment by 31 January 2015.

In this example, William made the following loans to the target company:

£250,000 in 2012-13

£350,000 in 2013-14

£150,000 in 2014-15

£250,000 in 2015-16.

he will need to make further claims to relief for each of these tax years on his Self Assessment tax return.  

Where interest is paid to the investor, those payments are liable to UK income tax subject to the usual rules. If any of the capital is repaid it must be taken offshore within the grace period [see RDRM34480] or be treated as a remittance.

It is possible for a qualifying investment to be made in a close company which is itself a relevant person [see RDRM33030]. In such cases, where the company subsequently uses the invested funds in the UK, for example to purchase stock or to pay employees, the foreign income and gains will not be treated as a taxable remittance, provided they are not used in a way which would itself be a potentially chargeable event [see RDRM34390].

Sometimes investments are made in qualifying companies via nominees rather than directly by a relevant person. Strictly this would mean the investment failed to qualify for business investment relief as the investment must be made by a relevant person (section 809VA(3)(a) ITA 2007). However HMRC will not reject a claim to business investment relief in cases where a relevant person subscribes for shares in a qualifying company through a nominee provided that relevant person is able to demonstrate they have beneficial ownership of those shares and that all of the other conditions for the relief are met.