Many entrepreneurs want to invest internationally, and the UK has long attracted foreign investors and high-net-worth individuals. However, several are still unsure about how they can invest. And also, when you start investing and doing business in the UK, it is a common misconception that only UK investors can qualify for SEIS and EIS.
In this article, I will explain to you what are the ways how to invest as a foreign investor in the UK and how you can qualify as a foreign investor to SEIS and EIS.
How to invest as a foreign investor in the UK
The United Kingdom is Europe’s number one Foreign Direct Investment (FDI) destination. Through its reputation as one of the most open economies in the world and a nation that boasts a stable business and political climate, many overseas organisations are drawn to the UK.
London also remains the financial capital of Europe, home to the European headquarters of nearly 60% of companies on the Fortune 500 ranking. Despite its recent depreciation, Great Britain still retains a strong currency and remains one of the most critical European consumer markets. The United Kingdom was 8th out of 190 economies in the Doing Business 2020 ranking established by the World Bank, gaining a position compared to the previous year.
You can invest as a foreign investor in the UK with visas, startups, financial assets and tax breaks. More information about this provides below.
4 Tips for Investing in the UK
1. Which Visa
Tier 1( Investor)
Tier 1 (Investor) visa permits a foreign investor to live in the UK without any job or residency limitations that apply to other visas.
By demonstrating access to £ 2 million, investors will initially get a 3-year visa, which can be extended to a total of 5 years on the condition that the entire £ 2 million is invested in UK businesses and/or the UK government. After five years of residency, the investor can apply for indefinite leave 12 months later to remain in the United Kingdom and even to become a British citizen.
Investors are required to provide proof of £2 million held in a regulated and disposable financial institution in the UK. The £2 million is considered available to the investor if it is owned either by the investor, spouse or unmarried partner.
Investors would also need to keep the £2 million in cash for a certain amount. If the investment funds are held for less than that amount of time, then the investor should give proof of the source of the funds. These sources of funds may be a gift, the proceeds of the sale of the assets or even winnings. An investor alone cannot apply to the value of the assets alone; assets must be liquidated.
Investors must invest within a certain period in either UK government bonds or share or loan capital in an active and trading UK-registered company (or companies). Investors also have to invest either in UK government bonds or in share or loan capital in a vibrant and trading UK-listed company or company) within a specific period.
Investments can’t be made in an offshore company, trusts, or in a company where the investment holds offshore. Investments can’t also be open-ended investment firms, investment trust firms, investment syndicate firms or platforms for pooled investment. Property and property-management or development companies preclude, as to are ISAs or premium bonds.
Tier 1( Entrepreneur )
Tier 1 Entrepreneurs should invest at least £ 200,000 in a new or established company in the UK from their funds or funds obtained from a third party. It is for those who invest in the UK by setting up or taking over and actively engaging in the operation of one or more companies in the UK. For new applicants, this category is now closed.
Individuals with entry clearance leave to enter or leave to stay as one of the following:
- a Tier 1 (Entrepreneur) Migrant
- a Tier 1 (Graduate Entrepreneur) Migrant
- a Start-up migrant, having held before leave as a Tier 1 (Graduate Entrepreneur) Migrant or have had such leave in the 12 months instantly before the date of application, may still apply in this category to lengthen their stay or for indefinite leave to remain.
Applications for extensions to Tier 1 Entrepreneur Visas will remain available until April 5, 2023. Up until April 5 2025, UK settlement applications may be made.
Applications to moving from a Tier 1 Entrepreneur Visa will be available until July 5, 2025, if changing to another visa, and July 5, 2027, if applying for a UK settlement.
Applicants outside the UK might need to invest £ 200,000 in most instances. You need to have financing from a venture capital company in the UK or have some UK government support to be able to spend a smaller amount of £ 50,000. Another option is an entrepreneurial team, with each member investing £100,000.
You can visit this link for more details.
2. Financial Asset
Although investing in UK financial assets is reasonably straightforward to invest in, there are a few issues that overseas investors and high-net-worth individuals coming to the UK should be aware of:
Mutual funds – In the UK tax code, mutual funds are either “reporting” or “non-reporting.” For reporting funds, any benefit on disposal is subject to capital gains tax, with gains taxed at 20 per cent; profits on disposal of non-reporting funds are taxable as income at rates of up to 45 per cent.
Accrued appreciation in financial assets: Where there is a substantial appreciation of financial assets kept at the time of relocation to the UK, these should be sold before arrival, provided there are no tax consequences in the person’s home country. They can consequently be repurchased, giving the assets a higher base cost, thus qualifying either a part or in whole any UK tax charge on a future disposal.
3. Investing in UK startup
Here are some startup investment opportunities worth considering:
This EIS Advanced Assured company has created, together with leading research scientists, a unique IP to meet the increasing need for sustainable plastics.
A patented, renewable, fully biodegradable plastic substitute has been developed by Teysha Technologies, which uses landfill waste to manufacture safe and biodegradable plastic alternatives for hundreds of different applications.
They have been known for tackling the plastic pollution crisis in the media and have several letters of intent and pre-orders with scalable foreign partners.
Smoothbalance is an accounting software application available for iOS, Android and Web users. It is a cloud-based accounting app for sole traders, freelancers and SMEs that is all-in-one. You can send quotes and invoices and record expenses to the app. The app’s user can also allow an accountant to access such information to promote frictionless bookkeeping and simplify tax returns.
Seecceed is a forum for job boards and social networks designed to provide creative approaches for job seekers and employers to apply for jobs and for recruiters to find new talent. It revolutionises the job market in the growing digital economy.
You can also find other startups you can invest in here.
4. Tax Break
Perhaps the most crucial aspect of the UK tax regime for high net-worth individuals who wish to relocate is the availability of the remittance basis of taxation.
If they can show that their home of origin is outside the UK, then the person only needs to be taxed on their UK income and gains plus any non-UK income and gains transferred to the UK for the first 15 years that they reside in the country.
Since HM Revenue and Customs can tax only the income and profits of high incoming net worth individuals from their arrival in the United Kingdom, their financial assets must properly match at that date. This will then enable them to put capital funds rather than income or gains in the UK.
The advantage of having capital brought in is that it is not viewed as a taxable case. Thus the funds should be frozen before relocating in the case of a bank account.
In the future, profits and earnings previously attributed to that account should be paid into a new or separate account and used to pay overseas expenditures.
How to Qualify a Foreign Investor to SEIS and EIS
1. Must have a permanent establishment in the UK
At first glance, it does not seem likely that the UK government would be that generous with its revenue. Nevertheless, SEIS and EIS tax reliefs are available to investors in certain instances.
To be eligible for SEIS and EIS relief, the company seeking investment should have:
A permanent establishment in the UK for a term of three years following the issuance of shares. A permanent establishment may be a branch, an office, a factory, a workshop, a mine or a sales agent. A service permanent establishment (Service PE) that provides technical or managerial services in the country is also included as a permanent establishment.
All the money raised by the share issue must be used in a ‘qualifying trade’ within two years.
Trade must be carried on by a parent company or a subsidiary, which is a 90% subsidiary, for a term of three years from the issue of the shares.
2. Must have an Agent in the UK
Another way to qualify as a foreign company for SEIS & EIS is by having an agent working in the UK. A UK agent is a person who, on behalf of the company, exercises his authority in the UK to enter into contracts.
This implies that the agent is expected to plan. Or has already repeatedly entered into binding contracts involving the company relating to the company’s substantive business and not relating to auxiliary or preparatory activities. Also, you must provide reasoning and evidence to HMRC to qualify under the UK agent test as part of your application.
There are different ways to invest in SEIS and EIS if you are a foreign investor. You can start reading this guide if you are interested in investing in SEIS and EIS.
You can also schedule an appointment with us today. Rest assured that someone will get in touch with you and help you every step of the way.