21 July 2017

What is Business Investment Relief?

Business Investment Relief (BIR) is potentially a useful tax relief for those UK taxpayers (typically non-doms) who are or have been remittance basis users (RBUs). BIR allows RBUs to invest their offshore income and gains in the UK without being taxed on that remittance. It can be used alongside other investment-focussed reliefs (for example, EIS) to give foreign investors a very attractive overall tax package on new UK investments.

BIR has been in place since 2012, but we expect changes in the next Finance Bill to widen their scope. The government is also consulting on how to make the relief more attractive still.

Under the current system, the relief has no value or time limits or thresholds. Consequently, so long as the UK investment meets the BIR conditions, the relief from taxes will apply to all the funds being remitted whatever their nature. It therefore gives would-be investors the opportunity to benefit from investment opportunities in large-scale projects without the need to fund investments with taxable remittances. Returns on investments would be subject to UK taxes in the usual way (whether capital gains tax, corporation tax or income tax etc.) although, as above, other reliefs may be used in conjunction with BIR in order to make it possible to achieve a very attractive overall tax treatment package for non-dom investors. 

Business Investment Relief rules

The BIR rules require the funds to be invested in the right type of company – more specifically, an unlisted trading company. The investment into that company can be structured by way of a purchase of new shares or by a loan. So far so simple. But there are additional conditions to be satisfied, and these can be problematic; the result has been a relatively meagre uptake of BIR since 2012.

A particularly problematic rule is the 'extraction of value' rule. This is unfortunately difficult to navigate, as it pulls in a very wide range of tenuously-connected trigger events. Those trigger events are broadly where any value is extracted either from the BIR company or almost any company that is, broadly speaking, associated with that company, BIR is lost on all of the funds invested. 

One suggestion on how to make this rule more palatable is to reconstitute it as have a proportionate clawback of the BIR based on the proportion or amount of value extracted. Another suggestion is that there should be an automatic exemption from the extraction of value rule for de minimis or trivial benefits.

The existing rules contain a number of further technical challenges which need to be carefully navigated.

In summary, even in its current form BIR offers investors the chance to invest in large-scale projects using their non-UK funds that they may otherwise consider to be 'off limits' for use in the UK. 

How can Burges Salmon help?

If you have any questions on whether BIR can benefit your investment plans or projects, contact Burges Salmon and we will be very pleased to help. You may also want to download our new report 'Perspectives on infrastructure', which has published views from across the sector on how we can improve the delivery of UK infrastructure. This includes interviews with several of the leading institutional infrastructure investors.

Key contact

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John Barnett Partner

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