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New rules for Tier 1 Investors – What does maintaining the investment mean?

With the new Immigration Rules for Tier 1 Investor visa applications in force from today, 6 November 2014, much has already been written about the widely anticipated increase in the investment funds requirement from £1 million to £2 million. However, the new Immigration Rules also introduce other, less widely publicised, changes which must be anticipated by new investors. In this article we focus on the new requirements for the maintenance of investment.

What were the previous requirements for maintaining the investment funds?

Anyone who entered the investor category under the rules in place before 6 November 2014 will be subject to the previous rules. These required that at least £750,000 of the £1 million investment funds be invested in the UK by way of Government bonds, share capital or loan capital in active and trading UK registered companies, with any balance being maintained as cash on deposit or through the purchase of assets.

The requirement that the investment be maintained meant (and for those covered by the old rules, still means) that if the overall value of the money invested dropped in any reporting period, then the investor was required make up the shortfall before the next reporting period. Therefore if the value of the investment dropped from £750,000 to £700,000, the investor would need to make a further investment of £50,000 before the next reporting period.

How are the new investor visa requirements different?

Investors will now need to maintain the full £2 million investment, rather than just 75% of the sum.

‘Maintain’ is also approached differently now too. The focus has switched from the current value of the investment on the reporting dates to the value of the funds originally invested. Under the new Immigration Rules, if the value of the investment drops to below £2 million, the investor will not need to make any further investment.

However, if the investor no longer holds that investment as a result of steps that they have actively taken, e.g. by withdrawing money, selling shares or bonds maturing, they will then be left with a shortfall.

In these circumstances, the investor will need to make a further investment because the investment made will be less than £2 million. To calculate the further investment needed, the investor will need to subtract the price originally paid for their remaining investments which they still hold from the £2 million required. They will then need to make an investment of this amount.

The value of the investor visa holder’s full remaining investment then becomes irrelevant. Even if their portfolio at that time is worth more than £2 million, an investor will need to make a further investment so that the total amount that they have invested is £2 million. Similarly, if the portfolio of investments’ value has dropped, the investor only needs to make up the shortfall so that the total value of the price paid for the investments is £2 million, even if this leaves the total value below £2 million.

Who is subject to this new requirement?

Anyone who submits an initial application to enter the Tier 1 Investor category on or after 6 November 2014 will be subject to the new rules. For those who submitted an application before this date, even if their application was not granted until after the date, they will still be subject to the previous rules, when they come to make an extension application.

Why have the rules been amended?

The Immigration Rules are periodically reviewed and amended for a variety of reasons. The changes to the investor category followed a report of the Migration Advisory Committee, which recommended both an increase in the minimum threshold from £1 million to £2 million and that the topping up requirement be amended. The amendments are intended to make the process simpler for investors. Tier 1 Investor migrants are no longer required to produce quarterly valuation reports and enjoy a greater level of protection against the volatility of the market.

What does this mean in practice?

While the new rules do reduce the extent to which a Tier 1 Investor will be vulnerable to volatility in the value of their investments and, for some, the process of applying for an extension should be much simpler, this will only be true for those investor visa holders who do not change their investments over the course of their stay in the UK. Anyone who sells shares or withdraws their investment will still need to demonstrate that their money has been reinvested. This will involve demonstrating the price paid for each investment when it is made and the value at which it is sold or withdrawn at any time, rather than being able to show as a global figure that the investment has been maintained.

Not only does this potentially make the evidential requirements for an extension application more complicated for investors, it may have an impact on investment behaviour. While under the previous rules it would be in the immigration interests of the investor to sell shares in a company which was not performing well and make an investment in a company which would increase the value of the investment, the new rules tend to reward those who do not withdraw money in order to make smarter investments.

An investor who has shares in a company which has a decreasing value will have to choose whether to keep their funds in that company in order to avoid having to top-up, or to sell the shares, for less than they were originally purchased for and make a new investment equal to the original purchase price. Decisions which were once wholly financial will now need to be made with the Immigration Rules in mind.

It is clear that the new requirements for the maintenance of investments are going to require careful consideration by both Tier 1 Investors and those who manage their investments.

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