In a move that may have caught practitioners off-guard, the UK government is suspending - for the time being - its Tier 1 investment visa regime. Its actions have already drawn fire from the industry.
(Updates with industry reaction.)
The UK is suspending its citizenship-by-investment scheme, known as its Tier 1 Investor Visa, because of concerns that it is being used by criminals. The move will stir controversy about the expanding “golden visa” market involving countries across the globe.
The visas, introduced in 2008 by the Labour government, led at the time by Gordon Brown, now require applicants to commit at least £2 million ($2.54 million) to obtain one. (The sum was raised about four years ago from £1.0 million).
These programmes have fuelled controversy over whether they generate sufficient revenue to justify such fast-track treatment of high net worth individuals, and have driven concerns that they could be misused by criminals. A number of European jurisdictions – most recently Montenegro – have introduced these programmes, and they have drawn fire from European politicians. Another complicating factor in the UK is that Brexit makes the UK programme less attractive because applicants may have bought these visas to get convenient access to the rest of the European Union.
Reports said that the UK scheme’s suspension will be ended after an audit process is introduced. WealthBriefing contacted the Home Office for further details and will update in due course.
"We will not tolerate people who do not play by the rules and seek to abuse the system," Immigration Minister Caroline Nokes, was quoted by the BBC as saying. The suspension is due to take effect from midnight on Friday. A spokesperson for the Home Office confirmed to this publication that the suspension was going ahead.
The number of granted Tier 1 investor visas peaked in 2014 (1,172). Last year the figure stood at 350, with the highest numbers going to Chinese and Russian investors.
The UK is not the first nation to halt such programmes: Canada did so over four years ago amid political controversy about how its use by Chinese nationals was fuelling high property prices in locations such as Vancouver. When it announced the suspension in March 2014, the Canadian government said: "For decades, it has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require. There is also little evidence that immigrant investors as a class are maintaining ties to Canada or making a positive economic contribution to the country."
"The route, used by high net worth clients to enter the UK, has long been the subject of concerns about its potential use for organised crime and money laundering. The visa enables those with access to a minimum of £2 million to invest these funds in the UK and to live and work in the UK for the duration of their visa which will lead to settlement,” Vikki Wiberg, immigration lawyer at Taylor Wessing, the law firm, said.
"The suspension of the route will be in place until new rules are introduced `in 2019’. These will require applicants to provide comprehensive audits of their financial and business interests, and show they have had control of the £2 million investment funds for at least two years. This will concern applicants who currently only have to show the source of funds for three months. The changes will also stop applicants investing in government bonds, which do not bring returns for the country, and require investment in active and trading UK companies. The latter will concern wealth managers whose compliance teams are already grappling with how to comply with Home Office requirements to confirm that investments have been made in accordance with the complicated investor rules,” she continued.
"The route, turned to increasingly in recent years given political uncertainty in certain areas of the world, has also been used since the Brexit referendum by high net worth individuals who hold European passports, for example in Malta. Such passports will not necessarily allow clients to come into the UK from 1 January 2021. In times where many countries are actively rolling out programmes to welcome high net worth individuals, it will remain to be seen whether the draw of UK education and the housing market means that the new Tier 1 Investor visa route will remain competitive,” she said.
"What this means in practice remains to be seen, but what is clear is that the government is becoming increasingly strict on high net worth individuals "playing by the rules". This is further underlined by the increasing use of Unexplained Wealth Orders (UWOs) to prove that a person's assets are not the proceeds of crime. UWOs have yet to truly be a game-changing enforcement tool and it remains to be seen whether the Tier 1 Investor Visas will remain competitive. The draw of UK education and the housing market may be enough to combat any uncertainty brought by these changes, but the government will need to be clearer in its messages to HNWs going forward to encourage investment," she added.
Dolfin, the UK wealth management platform, said earlier this week that China continues to be the source of most Tier 1 Investor Visa applicants, at 33 in the third quarter of this year, according to Home Office statistics. China is followed by Hong Kong, the United States and India in second, third and fourth place respectively.
A number of firms criticised the government’s move.
“At a time when the government is supposedly emphasising that the UK remains ‘open for business’, to announce the halting of the scheme less than 24 hours before the deadline for applications conversely sends out a negative message which deters international investment,” Rose Carey, partner at law firm Charles Russell Speechlys.
“While the government has framed today’s announcement as part of a crackdown on financial crime, in reality the majority of people using investor visas are legitimate businesspeople whose investment is invaluable for the UK economy and employment. It also provides another example of ministers’ increasing tendency to act without consultation with stakeholders.”
Mark Giddens, Partner at UHY Hacker Young, said the government’s actions were a blow to the UK’s image as a place friendly to HNW investors, and that this was damaging.
“Halting the investor visa programme on the eve of Brexit sends completely the wrong message to international investors. International investors do not need another reason to not invest in the UK and halting the scheme now seems like very poor timing,” Giddens said.
“While it is clear that the investor visa scheme is in need of reform, it would have made more sense to make the appropriate changes immediately rather than imposing an abrupt suspension,” he added.
Firms such as Henley & Partners, Dolfin and others have marketed themselves as being advisors for this “golden visa” market. These schemes typically require applicants to invest a minimum sum in a country – such as in a fund, or government bonds – in return for getting residency/citizenship and hence visa-free/visa-on-arrival access to countries around the world. Defenders say they are part of globalisation and facilitate free movement and help persons who might be persecuted. Opponents argue that by their nature they favour the wealthy and, in some cases, can add to strains, such as hotspot housing markets. An industry group, the Investment Migration Council, has defended these programmes.
(Editor's comment: This move may have caught some industry practitioners - and applicants - off-guard, but it arguably shouldn't have. Persons from Russia, for example, have been among the keenest applicants and, given the tense diplomatic relations between the UK and Russia over claims that Russian agents used nerve gas on British soil earlier this year, it may not be surprising that this has happened. The investment visa industry has rebutted claims that these schemes facilitate money laundering, but with so much focus on dirty money in Europe, the drawbridges are being lifted. At the same time, this comes as the UK is already losing one benefit to applicants from its being an EU member state. As and when the UK quits the bloc, that particular benefit will end.)