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Foreign individuals are usually taxed when they bring money into the UK on the remittance basis of taxation (for those non-domiciled in the UK). Meaning that their foreign income or gains become subject to UK tax. However, there are qualifying investments that avoid remittances into the UK being taxed.
For example, the Enterprise Investment Scheme (EIS), allows tax-free remittance for funds that support UK economic growth. Launched in 1994, this scheme has provided substantial tax reliefs for investors. Its sister initiative, the Seed Enterprise Investment Scheme (SEIS), introduced in 2012 to encourage investment in start-ups, offers even greater benefits. Both schemes have grown increasingly popular in recent years. By the end of the 2021/22 tax year, a cumulative total of more than £30billion had been invested under the scheme into 53,000 companies and in that year alone, more than £2.3bn was invested under EIS.
Non-doms, using the remittance basis, can use foreign funds for EIS investments tax-free under Business Investment Relief. There are certain criteria that must be met. For instance, the investment must be made within 45 days of bringing the funds into the UK. The company receiving the investment must meet eligibility criteria. All standard EIS investment rules must be followed, regardless of residency or citizenship. These include purchasing newly issued shares, holding them for at least three years, and can’t acquire 30% or more of the business.
What are the benefits?
Income Tax Relief. Investors can receive up to 30% income tax relief on the amount invested, up to a maximum of £1 million per year.
Capital Gains Tax Exemption. If the EIS shares are held for at least three years, any gains realised upon disposal are exempt from Capital Gains Tax.
Capital Gains Deferral Relief. Investors can defer capital gains tax on other assets by investing in EIS-qualifying companies. This deferral can be extended until the EIS shares are sold.
Loss Relief: If the investment results in a loss, investors can offset that loss against other income, further reducing tax liabilities.
HMRC’s guidance on Business Investment Relief and its relationship with EIS is detailed in the "Residence, Domicile and Remittance Basis Manual" under RDRM34320, as well as general EIS rules which are covered in the "Venture Capital Schemes Manual" VCM10010
You can find this information on GOV.UK:
These pages cover the conditions and scenarios in which such relief applies, as well as additional considerations related to investments made through EIS.
Contact Sustainable Times to learn more about how you could benefit from remittance tax relief.
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