Incentives to high net worth immigrants to the UK could generate far larger revenues for the cash-strapped government if rules are changed, argues a firm operating in this space.

Incentives to high net worth immigrants to the UK could generate far larger revenues for the cash-strapped government if rules are changed, argues a firm seeking to develop wider investment options for people looking to enter the country.

The business of advising individuals seeking to use the investor and entrepreneur visa programmes also needs to be more widely recognised as an important part of the UK’s wealth management ecosophere, says InvestUK, a London-headquartered firm which came out of Claridge Capital, a firm that had focused on international capital.

“You could say we are a marriage service between a company needing investment and those looking to invest,” Rupert Gather, chairman of the firm, told this publication recently.

As a sign of how this firm wants to boost the profile of such work, it is rolling out the inaugural High Value Immigration Awards, on 25 September, in London. At present, the sector serving high-value immigrants does not have such an awards programme to honour best practice. Lead sponsor for the award is wealth management firm London & Capital, and WealthBriefing is a media partner for the event. (To find out more about the event, click here.)

The visas work in the following way: With investor visas, a person qualifies for indefinite leave to remain under UK residency law after five years if he or she invests at least £1 million ($1.57 million); the goal is attained in three years if £5 million is invested, and two years for £10 million. An issue, InvestUK explains, is that given that investors must regularly prove that the sum involved is “at work” and do not want to lose this capital, many investors choose the relatively easy route of buying UK government bonds - gilts - and other securities, rather than invest in more “real economy” areas, such as a business. There are also “entrepreneur visas” - investors must commit at least £200,000 - which means a client gets indefinite leave to remain in the UK after five years; such an entrepreneur must be a director and create two jobs over 12 months or one job for 24 months. Entrepreneur visas can involve people starting a firm from scratch or putting money into existing firms in need of capital.

The idea of creating incentives for people with particular skills and business is not new to the UK. The country previously operated a “post-study work visa” system, which was phased out last year. Until it was wound down, the newer entrepreneur visa programme had not seen heavy demand but it has become more attractive in recent months. And the potential for more imaginative ways to use investor visas has encouraged InvestUK to develop its services in both areas, Gather said.

InvestUK wants the government to adjust the rules on investments so that the visa programmes lead to more revenue, he said.

“The returns on some conventional schemes [for investor visas] are so bad, the feeling is why invest £5 million rather than £1 million? A second reason why people choose the five-year time option is the perverse rule that says a spouse can only achieve indefinite leave to remain in five years regardless of the amount invested. So this means a man might send his wife and child over the as the applicants while he travels around,” Gather said.

The relatively small number of people applying for such visas means that the authorities can easily check to see if people are gaming the system and abusing it, so adjusting the rule on spouses should not open the floodgates for abuse, he continued.

A relatively modest adjustment to the spouse rule - such as a reduction in the five-year period before getting ILR - could mean £2 billion a year comes into the UK rather than the current figure of about £500 million, Gather said.

Gather said InvestUK is developing different options for those seeking IVs, such as private equity investments that generate robust yields over a certain time-frame and which are relatively low in risk, due to diversification. For example, he said, the firm is launching an infrastructure bond for IV candidates.

The firm cites a number of examples of use of the entrepreneur visa. It has assisted numerous clients who are about to apply for their visa, or who have recently secured their initial visa, to find business opportunities. Clients have invested in businesses across a range of sectors including retail, technology, financial services and recruitment. The clients typically become both directors and shareholders and it works particularly well when the international entrepreneur can add real value to the business as well by assisting the business to export to their country of origin or improve their overseas supply chain.

Rolling out a red carpet

The visa programmes were rolled out by the current Conservative/Liberal Democrat coalition government about a year after it was elected in 2010. The measures were seen as ways of allaying fears that the UK, which introduced a new top income tax rate of 50 per cent under the previous Labour government (subsequently cut to 45 per cent), as well as a levy on non-domiciled residents, had become hostile to onshore and offshore wealthy individuals. The visas were also seen as ways of garnering revenue for the UK Treasury.

While not the sole factor, these visas may have played some part in making the UK more attractive to overseas investors generally. The UK was Europe’s top destination for foreign investment in 2012, drawing 11 per cent more projects that the year before (source: UK Trade & Investment).

The UK Border Agency – the organisation dealing with visas – has dealt with 6,000 applications of people seeking entrepreneur visas alone, according to InvestUK.

Although wealth management firms have sought to get a piece of the pie, a recent story suggested that not all firms have found the business sufficiently worthwhile. A few weeks ago, HSBC said it was shuttering its investor visa programme, because insufficient clients were retained by the firm beyond the minimum five-year period required by government rules.

Generally speaking, the UK is an attractive proposition for HNW immigrants today, Gather said, given the alternatives. “The quality of people applying for these visas is driven by geo-political situations and the UK is moving up the league table as a place to come. America is now very difficult and Canada is full. Relatively speaking, the UK is straightforward,” he said. Chinese people, for instance, have been taking up such visas. With the US, one of the downsides of the US worldwide tax code is that someone who gets US citizenship can walk into a “tax trap”, he said.

The potential scale of business has encouraged InvestUK to widen its geographical footprint. InvestUK has set up a subsidiary in West Africa and is looking at Russia and China, working with organisations such as the UK’s Department of Trade and Industry and the associated foreign embassies that the UK operates in such places.