For most Tier 1 Investor visa holders, making a permitted investment in the UK involves transferring investment funds into a managed portfolio of shares and/or corporate bonds issued by a carefully chosen selection of UK listed companies, usually for a period of 5 years. But some investors prefer more control over their investment, including the ability to monitor the performance of their investment on a daily basis. As a result, prospective Tier 1 Investor visa applicants often ask us whether a Tier 1 Investor can invest in a single or own business rather than a traditional managed portfolio?
As is well known, at the initial application stage, there is no requirement to demonstrate how investment funds will be invested. From a legal perspective, the relevant question is therefore whether an investment into a single or own business can satisfy the requirements of the Immigration Rules for an extension of stay as a Tier 1 Investor? The short answer is, yes, at least in principle, although, as we will see, structuring such an investment will require careful planning.
Investing in a single or own business – The ‘active and trading’ requirement
The starting point is Table 8A of Appendix A to the Immigration Rules. This sets out the basic requirement that where an applicant has been granted leave as a Tier 1 Investor Migrant since 29 March 2019 then, in order to qualify for an extension to stay, they must, within 3 months of entering the category, have invested at least £2 million by way of share capital or loan capital in active and trading UK registered companies.
Nothing in Table 8A prevents an investment into a single or own business. However, the investment must be by way of purchase of share or loan capital and the business must be ‘active and trading’. The definition of an ‘active and trading’ business is set out in paragraph 65A of Appendix A to the Immigration Rules. For an in-depth look at this requirement in the context of start-ups, see my earlier post: Can Tier 1 Investors invest in Start-ups?. For present purposes, it suffices to note that the business receiving the investment must be registered with Companies House in the UK, registered with HM Revenue and Customs for corporation tax and PAYE, have accounts and a UK business bank account, both showing regular trading of its own goods or services and have at least two UK-based employees who are not its directors.
Tier 1 Investor single or own business investment – Excluded investments
The requirement in Table 8A must also be read subject to paragraph 65 of Appendix A, which sets out various types of excluded investments. For an in-depth look at prohibited investments under the Tier 1 Investor route, see my earlier post: UK Investor Visa Investment Options. For present purposes it suffices to note that provided the business receiving the investment is not an offshore company, an open-ended investment company, an investment trust company, an investment syndicate company or a company mainly engaged in property investment, property management or property development then an investment into a single or own business will not be prohibited. For an in-depth look at the scope of the prohibition on investing in property-related businesses, see my earlier post: Tier 1 Investor Visa – A Guide To Property and Real Estate
A word of caution is necessary here. Under paragraph 65AA of Appendix A to the Immigration Rules, if a Tier 1 Investor invests in an entity which acts as an intermediary vehicle to invest or otherwise channel funds elsewhere then their investment will be considered to be where the funds are finally invested, not in the intermediary vehicle. The intermediary vehicle must satisfy various requirements as set out in the rules and the investment in the final destination must itself be a qualifying investment.
Invest in a single or own business – Maintaining the level of investment
Table 8A of Appendix A also makes clear that, at the extension stage, points will only be awarded where the level of investment has been maintained. The point to emphasise here is that it is the ‘level of investment’, not the ‘value of investment’ that must be maintained. This is important, for reasons I will explain.
Those with a long memory may recall that Tier 1 Investors who initially applied to enter the category before 6 November 2014 also had to show that they had maintained their investment. Indeed, there is still provision for the small number of such applicants in Table 8B of Appendix A. However, under paragraph 65C(b) of Appendix A, any fall in the market value of their investments had (has) to be corrected (or ‘topped-up’) before the end of the next reporting period, or within six months, whichever is sooner, by the purchase of further qualifying investments.
In contrast, anyone entering the Tier 1 Investor visa category now need only maintain the level of investment, rather than the market value. Paragraph 65C(a) of Appendix A stipulates that where Table 8A applies, points for maintaining the level of investment will be awarded unless any part of the qualifying investment is sold without the gross proceeds of sale being re-invested in qualifying investments before the end of the next reporting period, or within six months, whichever is sooner.
This change from needing to maintain the ‘value of investment’ to merely the ‘level of investment’ is important for anyone considering investing into a single or own business because, quite simply, it has removed the need for a business to be periodically re-valued. Now, a Tier 1 Investor visa holder can invest in a single or own business and, provided they do not liquidate any of their shares or bonds (or re-invest if they do), they will be able to demonstrate that they have maintained the level of their investment.
Tier 1 Investor visa extension – Portfolio requirement
So far so good. But, anyone considering investing into a single or own business must also keep in mind the evidential requirements that they will need to satisfy when applying for an extension of stay as a Tier 1 Investor. Paragraph 65C(a) provides a clue when it refers to the applicant needing to have ‘purchased a portfolio of qualifying investments’. But it is paragraph 65-SD of Appendix A which sets out the specified evidence requirement. In order to qualify for an extension of stay, a Tier 1 Investor ‘must provide a series of investment portfolio reports, certified as correct by a UK regulated financial institution’. Therefore, a Tier 1 Investor who is considering investing into a single or own business cannot simply purchase share or loan capital and then sit back – they must ensure that their investment is reflected in investment portfolio reports and that these portfolio reports are certified as correct by a UK regulated financial institution.
Finding an FCA-regulated investment management firm that is willing to manage an investment into a single or own business, rather than a selection of UK listed companies, may not be straightforward. But it is not impossible. Tier 1 Investors can expect to be asked to provide a prospectus (a formal legal document designed to provide information and full details about an investment offering) and either audited or management accounts for the target company. Some investment management firms may require the shares or loan notes to be under their custody, whilst the costs of procuring the investment management services are likely to be higher than when investing into a traditional portfolio. Investors are also likely to need the services of a commercial lawyer to either obtain an ISIN (a code that uniquely identifies a specific securities issue), draft an official bond purchase agreement or prepare a share certificate.
If a Tier 1 Investor is able to bring their investment in a single or own business within an investment portfolio managed by an FCA-regulated investment management firm, then consideration should also be given to ensuring that the portfolio reports that will be generated will satisfy the strict requirements of the Immigration Rules. Paragraph 65-SD of Appendix A goes on in sub-paragraph (a) to set out various mandatory requirements that investment portfolio reports must satisfy, if they are to be accepted by the Home Office.
A detailed analysis of the requirements for portfolio reports is beyond the scope of this article, but for present purposes it suffices to note that the portfolio reports must confirm the price paid for the investment (which must total at least £2 million) and certify that the total investment was maintained (i.e. either not liquidated or liquidated and re-invested within the time period mentioned above). The portfolio reports do not need to certify the value of the business.
Loan funds to companies – Company accounts requirement
Two further points are worth nothing here. Firstly, under paragraph 65-SD(a)(vii) of Appendix A, Tier 1 Investors who invest in single or own businesses by way of a loan to the company must also provide audited accounts or unaudited accounts with an accounts compilation report for the investments made, giving the full details of the applicant’s investment. The accountant must have a valid licence to practise or practising certificate and must be a member of a recognised supervisory body.
Review of Tier 1 Investor single or own business investment
Secondly, the investment management firm certifying the investment portfolio reports must confirm to the Home Office that none of the investments being relied on are prohibited (see above). Tier 1 Investors who invest in single or own businesses can therefore expect their investment to be regularly reviewed throughout its life, for confirmation not only that the initial investment is a permitted investment, but that it remains a permitted investment.
Concluding comments on single or own business investment
In summary, Tier 1 Investor visa applicants can invest in a single or own business rather than a managed portfolio of UK listed companies. However, the business receiving the investment must be ‘active and trading’, the business must not be an excluded business type, the level of investment must be maintained, the investment must be reflected in a series of investment portfolio reports that contain certain specified information and are certified as correct by a UK regulated financial institution, any investment by way of a loan to the company must be accompanied by business accounts and Investors can expect their investment to be regularly reviewed.