New Immigration Rules (March 2019) - Tier 1 (Investor) visa updates
The new changes will take effect on 29 March 2019 and will apply to all new applications submitted on or after this date. Applications filed before this date will be considered under the current rules.
Where an initial application is decided under the rules in force before 29 March 2019, there will be a transitional period where further applications (for example, extension or indefinite leave to remain (ILR) (also known as permanent residence or settlement) applications) will be considered under those same rules until 5 April 2023 (extensions) or 5 April 2025 (ILR). After these dates, the new rules will apply regardless of when the initial application was made.
The reason for this transitional period is due to the new rules around what qualifies as a permitted investment in the UK. By providing a transitional period, it protects those who made investments in good faith under the current rules even if they are no longer permitted under the new rules.
Overview of Tier 1 (Investor)
The Tier 1 (Investor) category is the route which enables high net worth individuals who invest at least £2m in the UK to live, work and/or study in the UK and to have the opportunity to obtain settlement, provided the investment is maintained. Accelerated settlement options are available in return for higher levels of investment.
This visa route has been the subject of frequent changes as the UK government tackles concerns around money laundering and the provenance of the funds used to satisfy the investment requirements. In December 2018, the UK government announced that it was suspending the route entirely but overturned this decision 48 hours later. Subsequently, it was announced that the route would be subject to significant reform.
The changes that are due to come into force on 29 March 2019 are not extensive, but the Home Office has indicated that it will introduce further reforms later in the year once it has had an opportunity to consult with stakeholders.
Changes from 29 March 2019
Source of funds
Currently, applicants must provide evidence of the source of their funds if the money has not been held in an account in the applicant’s name, or in joint names with the applicant’s partner, for at least 90 days. From 29 March 2019, this 90 day requirement is to be extended to two years.
In effect, this will means that most applicants will now need to demonstrate the source of the funds – for example, a gift, a lottery win, a distribution from a trust or will or a sale of an asset, etc.
The Home Office had previously suggested that it would require applicants to provide an independent audit of their wealth as part of the application procedure. However, the potential implementation of this requirement has been pushed back to a later date.
UK bank account due diligence
Currently, applicants are required to have an FCA regulated UK bank or investment account opened for the purpose of making the investment in the UK and provide a letter from the institution confirming that the account has been opened. From 29 March 2019, the bank will additionally need to confirm in the letter that it has completed all of the due diligence and Know Your Client checks required by the regulator.
This places an extra duty on the UK banks but, since these checks should have been completed in any case, it should not be an issue for the bank/wealth manager to issue this confirmation. Indeed, many banks/wealth managers already include this confirmation in their letter as standard.
UK government bonds
UK government bonds will no longer be a qualifying investment.
This removes a low risk and low maintenance investment option from applicants as the UK government feels that the UK derives little economic benefit from such an investment.
Pooled investments
Currently, investments in pooled investment vehicles are not permitted but this is being relaxed. From 29 March 2019, investment in a pooled investment vehicle will be permitted where the vehicle also receives funding from the UK government or a devolved government – for example, the British Business Bank or Scottish Investment Bank.
Further, any intermediary vehicles must be regulated by the FCA and they will need to provide evidence of the final destination of an investment to show that the UK was the ultimate beneficiary of the investment.
Active and trading UK companies
The definition of what counts as a qualifying investment into an “active and trading UK company” has been narrowed.
Currently, it is enough to show that the company has a registered or head office in the UK, has a UK bank account showing business transactions and the company is subject to UK taxation.
From 29 March 2019, an active and trading UK company is now defined as one which:
- is registered with Companies House in the UK;
- is registered with HMRC for corporation tax and PAYE;
- has accounts and a UK business bank account showing regular trade of its own goods and services; and
- has at least two UK based employees who are not directors.
In practice, these changes will only affect those investing in private companies – a high risk venture – since the aim is to tighten the rules to prevent potential abuse through an investment in a company that is not actually undertaking any trade in the UK.
Price of investments
The Home Office has clarified that “price of investment” means the amount paid by the applicant for the investment, not the face value. This provides welcome clarity that those who buy bonds can include accrued interest as counting towards the required minimum capital investment.
Longer grants of leave
In line with other categories, where an extension is granted by way of Entry Clearance, the grant of leave will now be two years and four months, extended from two years.
Ongoing suitability test
The Home Office currently has the ability to refuse initial applications where it has reasonable grounds to believe that the applicant is not in control of their funds or the funds were obtained unlawfully or the character, conduct or associations of a party providing funds is not conducive to the public good.
Interestingly, this test is now being extended so that it will also apply to both extension and ILR applications. This means that the Home Office may refuse an extension or ILR application if it later receives new information about the source of the investment funds for the initial application, which would have led it to refuse the initial application if this information had been available at the time.
Conclusion
The Home Office acknowledges that the changes are not significant and the Tier 1 (Investor) route remains broadly the same. The increased due diligence requirements mean that almost all applicants will be required to provide evidence of the source of their funds. However, in most other aspects, initial applications will remain the same.
The removal of government bonds as a qualifying investment had long been expected. This removes a popular, low risk option for applicants. Investment managers will therefore need to be more creative when designing portfolios which satisfy the investment requirements for those clients with a low risk appetite.
We are expecting further reforms to the Tier 1 (Investor) route later in the year after the UK government has had the opportunity to undertake a consultation. New immigration rules are typically released each April and October, so we may have further updates in the autumn.
In the meantime, we await the updated policy guidance which is due to be released on 29 March 2019 for further details on how these new rules will be applied.