Business investment relief for non-doms – how it is changing

Abolition of current non-dom rules 

The special tax regime for non-doms is being abolished and replaced with a new residence-based scheme from 6 April 2025. 

 With the introduction of the new regime there will be some transitional provisions for existing non-doms. This includes a Temporary Repatriation Facility (TRF) available for three years from 6 April 2025 to 5 April 2028. The TRF will allow tax to be paid at a reduced rate on bringing certain previously unremitted Foreign Income and Gains (FIG) to the UK.  

The TRF can also apply to FIG where a claim for business investment relief (BIR) has been made.  

From 6 April 2028 when the TRF period ends, it will no longer be possible to claim BIR on any new investments, or reinvestments. Existing qualifying investments will continue to benefit from BIR until a potentially chargeable event arises. From 6 April 2028, the only mitigation step available to prevent a taxable remittance on a potentially chargeable event will be to take the FIG offshore. 

FIND OUT MORE ABOUT NON-DOM STATUS 

Up to 6 April 2028, BIR continues to give relief from tax under the remittance basis for funds brought to the UK to make qualifying investments. FIG are not treated as remitted where the funds are invested within 45 days of being brought to the UK. There is no annual or lifetime limit. However, consideration needs to be given to the TRF and whether that is a more appropriate option. 

The investment must take the form of a subscription for, or acquisition of, shares or securities (hereafter ‘shares’) of the target company or a loan (whether secured or unsecured) to that company. Two conditions, A and B, must be satisfied. 
 
A: Target company must be an eligible company 
 
The first condition is that the target (investee) company is not listed on a recognised stock exchange (though it may be quoted on an exchange-regulated market such as AIM) and is one of the following: 

  • An ‘eligible trading company’ – is carrying on one or more commercial trades (or is preparing to do so in the next five years), and carrying on commercial trades is substantially all of what it does (or is reasonably expected to do once it begins trading). HMRC normally takes ‘substantial’ to mean 80% or more. A company will not qualify as a trading company if the trade is carried on by a partnership in which it is a partner. 

  • An ‘eligible stakeholder company’ – it exists wholly for the purpose of making investments (either shares or loans) in eligible trading companies (ignoring any minor or incidental purposes), and it holds one or more such investments, or is preparing to do so within the next five years. 

  • An ‘eligible hybrid company’ – where it does not qualify under 1 or 2, it carries on one or more commercial trades (or is preparing to do so within the next five years) or it holds one or more investments in eligible trading companies or is preparing to do so within the next five years. To qualify, the carrying on commercial trades and/or making investments in eligible trading companies must constitute substantially all of what it does (or is reasonably expected to do once it begins operating). 

  • An ‘eligible holding company’- it is a member (but not necessarily the parent) of an eligible trading group or of a group that is reasonably expected to become an eligible trading group within the next five years and 

    • An eligible trading company in the group is a 51% subsidiary of it, and 

    • Where the ordinary share capital that it owns in the eligible trading company is owned indirectly, each intermediary in the series is also a member of the group. 

For these purposes, ‘trade’ includes a property development or rental business and certain preliminary activities. 
 
B: The related benefits condition 
 
The second condition is that neither the taxpayer nor any ‘relevant person’ (such as a spouse, minor child or grandchild, or related trust or company) has obtained, or become entitled to obtain, any benefit that is directly or indirectly attributable to the making of the investment (or any benefit that it is reasonable to assume would not have been available in the absence of the investment). 

If at any time, the investor sells the investment or another ‘potentially chargeable event’ subsequently occurs, the original tax relief can be withdrawn unless the funds are re-invested (only available if takes place before 6 April 2028) quickly in another qualifying company or other ‘mitigation step’ is taken with a specified time. This is achieved by treating the amount of the investment (or the relevant portion if the event does not affect the whole investment) as remitted to the UK at the end of the ‘grace period’ (see below). 

A ‘potentially chargeable event’ includes: 

  • The taxpayer disposes of all or part of the investment 
  • The investee company ceases to be an eligible trading, stakeholder, hybrid or holding company 
  • Value is received by or for the benefit of the taxpayer or a relevant person from any person, in circumstances that are directly or indirectly attributable to the investment (normal arm’s length payments such as dividends, loan interest or salary are excluded) or 
  • The investee company breaches the ‘five-year start-up rule’ (i.e. the company remains non-operational five years after the investment was made). 

Events do not count as potentially chargeable events if, broadly, they are due to bona fide formal insolvency procedures. However, the extraction of value in connection with the insolvency procedures will still count as a potentially chargeable event. 

If the potentially chargeable event is a disposal of all or part of the holding, or if value is extracted in connection with the dissolution of the target company, a charge will not arise if the whole of the proceeds are taken offshore or reinvested (if before 6 April 2028) in the same or another qualifying company (within the grace period). 
 
For other potentially chargeable events, there will be no tax charge if the investor also disposes of the entire holding in the target company and reinvests (if before 6 April 2028) all the proceeds or takes them offshore again, within the grace period). 

Where the potentially chargeable event is one that requires the investor to dispose of his holding, the proceeds must be taken offshore (or reinvested if before 6 April 2028) within a ‘grace period’ of 90 days, normally beginning when the investor became aware, or ought reasonably to have become aware, of the event (or, in the case of extraction of value, from when the value is received). 
 
After a disposal (or an extraction of value in connection with a winding up) there is a grace period of 45 days for the proceeds to be taken offshore (or reinvested if before 6 April 2028), beginning when the proceeds first become available to the investor. This applies whether the disposal is itself the potentially chargeable event or is the required mitigation step in relation to another such event. The period may be extended in exceptional circumstances. 

Further UK tax reliefs 

The UK operates a number of other tax incentive schemes to encourage business investment, and it is possible to qualify for these reliefs as well as BIR / the TRF. For example, a direct investment in a UK start-up company may also qualify for initial 50% income tax relief and capital gains tax (CGT) relief under the Seed Enterprise Investment Scheme. Similarly, an investment in a company that is less than 7 years old may qualify for the Enterprise Investment Scheme giving 30% income tax relief and CGT relief. If a longer term investment in a business does not qualify for these reliefs, it may still qualify for a lower than usual rate of CGT on disposal under the Investors’ Relief rules. 

Conclusion 

Business Investment Relief has provided a valuable incentive for investment in unlisted UK companies. However, it may also expose taxpayers to risks that need to be managed: if relief is given and subsequently withdrawn (for reasons beyond their control), taxpayers will need to act promptly to ensure that they will not be taxed on the resulting remittance. The relief is therefore perhaps most attractive to taxpayers who can expect to exercise a significant degree of control over the companies in which they invest. With the changes from 6 April 2025, anyone who has made a claim for BIR, or may wish to do so, should consider the TRF. 

How we can help 

We offer comprehensive services including help and advice for individuals on how to structure assets and business interests before coming to the UK, and on how to manage their tax affairs once they become UK resident. We have helped a number of individuals to make the most of Business Investment Relief and are actively advising in relation to the non-dom changes. We would be happy to explore how we can help you. 

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