Tier 1 Investors: are you caught in the Corporate Bond trap?
As is well known, Tier 1 (Investor) visa holders must, within 3 months of entering the UK, make a substantial financial investment by purchasing UK Government bonds, share capital or loan capital in active and trading UK registered companies. Many Tier 1 (Investor) visa holders, seeking to balance risk and return, invest wholly or partly in UK Corporate Bonds, often on the advice of investment managers. However few, it would seem, are aware of a provision of the Immigration Rules which, unless addressed carefully, could result in their extension or settlement applications being refused.
What is a ‘Corporate Bond’?
A Corporate Bond is a bond issued by a company and sold to investors. Investors who buy Corporate Bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures. Companies use the proceeds from bond sales for a wide variety of purposes, including ongoing operations, financing mergers and acquisitions or to expand business. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations.
What does the Home Office say about Corporate Bonds?
Neither the Immigration Rules, nor Home Office policy guidance, expressly refer to Corporate Bonds.
The Immigration Rules do state at Tables 8A, 8B, 9A and 9B of Appendix A that an investment by way of ‘loan capital in active and trading UK registered companies’ will constitute a qualifying investment and it is uncontentious that UK Corporate Bonds fall within this definition.
However, a Tier 1 (Investor) who purchases Corporate Bonds as all or part of their qualifying investment will only qualify for an extension of stay or settlement if they are able to evidence the bond purchase in the way required by the Immigration Rules. This brings us to paragraph 65-SD of Appendix A to the Immigration Rules, which sets out the documents that must be provided as evidence of the investment.
Paragraph 65-SD(a) of Appendix A states that individuals applying for an extension of stay or ILR as a Tier 1 (Investor) must provide a series of investment portfolio reports, certified as correct by a UK regulated financial institution. The sub-paragraph goes on to set out various evidential requirements that the investment portfolio reports must satisfy.
Then, hidden part-way through a section of the rules dealing otherwise exclusively with investment portfolio reports, paragraph 65-SD (a)(vii) of Appendix A, states:
65-SD (a)(vii) for investments made as loan funds to companies, be accompanied by 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 the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants in Scotland, the Institute of Chartered Accountants in Ireland, the Association of Chartered Certified Accountants, or the Association of Authorised Public Accountants, the Chartered Institute of Public Finance and Accountancy, the Institute of Financial Accountants, the Chartered Institute of Management Accountants, or the Association of International Accountants;
A requirement that cannot be satisfied?
As mentioned above, a Tier 1 (Investor) who buys a Corporate Bond lends money to the company issuing the bond. Therefore, absent any guidance from UK Visas & Immigration to the contrary, it would be open to a Home Office caseworker, presented with an investment portfolio that includes UK Corporate Bonds, to find that the investor has invested by way of loan funds to one or more companies.
This would then trigger a requirement to provide “audited accounts or unaudited accounts with an accounts compilation report for the investments made, giving the full details of the applicant’s investment”. However, in practice, the vast majority of Tier 1 (Investor) visa holders who invest by way of Corporate Bonds purchase investment grade bonds in large blue-chip listed companies. Even if it is possible to obtain a copy of the audited financial accounts for the company that issued the bond, companies such as British Telecommunications, Lloyds Bank, Vodafone Group and Centrica do not provide details of individual investments in their corporate accounts. Therefore, the requirement that the accounts must give “full details of the applicant’s investment”cannot be satisfied, leaving the investor at risk of their immigration application being refused.
Evidential flexibility to the rescue?
The Immigration Rules offer one potential way out for Tier 1 (Investor) visa holders who find themselves caught in the Corporate Bond trap.
Paragraph 245AA(d) of the Immigration Rules allows for an exercise of ‘evidential flexibility’, essentially caseworker discretion, where an applicant has submitted a specified document which does not contain all of the specified information, but the missing information is verifiable from other documents submitted with the application.
If a copy of the company’s audited accounts are included as part of the extension or settlement application (these can be obtained from the company Annual Report) then it can be argued that the specified document has been submitted. This document will not contain full details of the applicant’s investment and so will not contain all of the specified information. However, full details of the investment in Corporate Bonds should be set out in the portfolio valuation statements. Provided that the portfolio reports and accounts are genuine and the applicant meets all the other requirements of the Rules, the decision-maker should grant the application despite the omission of full details regarding the applicant’s investment within the company accounts.
In order for this argument to succeed, Tier 1 (Investor) visa holders must ensure that their portfolio valuation statements include full details of their investment in UK Corporate Bonds. Where a portfolio report clearly shows the date and time of bond purchase, the number of bonds purchased, the company that issued the bonds, the price per bond, the interest rate and maturity date, it will very difficult, if not impossible, for the Home Office to say that the missing information is not verifiable from other documents submitted with the application.
Anyone seeking to rely on evidential flexibility must also ensure that all the other requirements of the Immigration Rules are satisfied. If the application for an extension of stay or settlement is deficient in any other respect, paragraph 245AA will not be engaged and the Home Office will decline to exercise evidential flexibility.
There is therefore a potential way out of the Corporate Bond trap. However, the point remains that genuine Tier 1 (Investor) migrants who have made a substantial investment into UK Corporate Bonds issued by blue-chip listed companies should not have to rely on an exercise of discretion in order to secure an extension of stay or settlement. Investors (and those who advise them) should have certainty as to whether they will, or will not, satisfy the requirements of the Rules.
It is time that the Home Office clarified its intended interpretation of ‘loan funds to companies’ in paragraph 65-SD (a)(vii) of Appendix A. It is suggested that whilst there may be justification for requiring investors who loan funds to small private entities to evidence their investment in the organisation’s accounts, the same justifications do not apply in relation to bonds issued by major national corporations with a reputation for quality, reliability, and the ability to operate profitably in good times and bad.
Equally, it cannot be right to require those who purchase bonds issued by these same major corporations to produce evidence which is not available, especially when the evidential requirements themselves could be sidestepped through the purchase of share capital instead.
On 22 August 2017, the Home Office Tier 1 (Investor) policy team wrote to us stating as follows:
“I can confirm that corporate bonds will be classed as ‘loan funds to companies” and trigger the evidential requirements of paragraph 65SD a) viii) [note – we assume this to be a typo and the correct reference to be 65SD a) vii)]. Other loan based investments to companies that meet the rules and evidential requirements will also be accepted. We cannot provide an exhaustive list of investments that fall under “loan funds to companies”. We would also note that if the funds invested are not stocks or government bonds then their only option to qualify as an investment will be under the loan funds to companies evidential requirements.”
Contact Our Immigration Barristers
If you would like to discuss your application for entry to the UK, further leave to remain or settlement as a Tier 1 (Investor), contact our investment immigration barristers in London on 0203 617 9173 or via our enquiry form.