Offshore
OPINION OF THE WEEK: How Killing UK's Tier 1 Visa Continues Non-Dom Decline
The Canada-based author of this opinion piece, responding to this news service's commentary a few weeks ago, argues that the UK closing its investor visa regime last year will continue to drag numbers down.
From Editor, Tom Burroughes: The following article is from David Lesperance, of Lesperance Associates. Based in Canada, he advises people on matters such as cross-border wealth planning and solutions. (See here for previous comments from him.) We’re delighted that David has entered a recent debate that I kicked off a few weeks ago about UK resident non-domiciled (non-dom) individuals and what the numbers are telling us. As ever, this news service doesn’t endorse all views of guest writers. If you want to write a guest opinion argument, email tom.burroughes@wealthbriefing.com
In a prior article, Tom Burroughes discussed a recent study that
revealed a 40 per cent drop in the number of new non-dom
remittance taxpayers arriving in the UK. The study related to a
period that ended on 1 March 2022, however, there was an
event that took place in February 2022 that is sure to accelerate
this trend. Namely closing the
Tier 1 visa category. While Burroughes clearly articulated
the benefits accruing to the UK economy and tax purse from
non-doms, in this article my goal is to take the argument
further. Killing this immigration stream was a mistake, and
a replacement category should be adopted in order to slow or
reverse the disastrous decrease in new non-doms.
Is the UK really overrun by foreign
undesirables?
For those unfamiliar with the previous Tier 1 category,
applicants seeking UK residence status in the UK (aka “Leave to
Remain”) were required to have certain minimum liquid assets and
invest those assets in share or loan capital in actively traded
UK-registered companies. The Tier 1 Visa category was first
introduced in 1994 and it is worth remembering that this was the
era of Russian and other CIS oligarchs moving into the UK and
creating what was later to be called “Londongrad.” Also
worth noting is that anti-money laundering and “Know Your Client”
techniques and standards were in their infancy compared with
those in place today. As a result, some questionable characters
slipped into the UK during that early period.
Fortunately, since that time several things have happened to rid
the UK of a legacy of “alleged” scoundrels and to prevent new
scoundrels from gaining UK residence status. First, some of those
early questionable characters died from natural and
unnatural causes. Second, others self-exiled as a result of
having run through the 15-year time limit on using the remittance
basis that was put in place in 2015. Third, the screening of Tier
1 applicants was substantially strengthened in 2015. However,
these factors did nothing to change the perception
amongst politicians, journalists and the general public that
these undesirables were still being allowed to immigrate to the
UK.
The unwarranted February 2022 invasion of the Ukraine ordered by
Russian President Putin created the perfect opportunity for the
UK government to do something about this perceived problem. The
government not only imposed justified sanctions against certain
oligarchs with close Putin ties, it also took the opportunity to
close the Tier 1 visa category within days of the invasion.
“Undesirables”
In January 2023 a report was tabled in parliament that purported
to support the position that the Tier 1 visa category had been
used to allow numerous undesirables into the UK. However, a
critical review of the report supports my position that this
contention is unsubstantiated. For example, the grand total of 10
undesirables named in the report came in the period
before the 2015 Tier 1 reforms and were
de minimus compared with the over 6,300 Tier 1 visa
immigrants of unblemished character who came in this period.
Moreover, the number of alleged undesirables who immigrated after
the 2015 Tier 1 reforms was not part of the report. So the facts
do not lead to the negative conclusion.
Even so, this did not stop Home Secretary at that time, Priti
Patel, from saying: "Closing this route is just the start of our
renewed crackdown on fraud and illicit finance. We will be
publishing a fraud action plan, while the forthcoming Economic
Crime Bill will crackdown on people abusing our financial
institutions...” She added: “Since its introduction, the Investor
Visa route has been reformed to improve its value to the UK
economy and to reduce the exposure of the route to illicit
finance.”
She closed her speech with one clear warning to potential
investors in the UK: “Settlement will now be conditional on
applicants executing an investment strategy that can show genuine
job creation and other tangible economic impacts. Passively
holding UK investments will no longer be enough to obtain
settlement.”
This closing statement clearly gives credence to the theory that
closing the Tier 1 category had more to do with the government
not believing that passive investments were sufficiently
impactful on the UK economy than with trying to keep out bad
apples. This thesis was further supported in subsequent
announcements that the government was going to emphasise the
Start-Up Visa programme as the preferred future choice to attract
businesspeople to the UK.
Unfortunately, the Start-Up Visa programme is no replacement for
potential UHNW UK immigrants. This is because an applicant needs
to prove that they will spend the majority of their time on the
£400,000 investment involved, rather than on, say, their own £100
million + portfolio or business. The logic for such a requirement
is incomprehensible.
Throwing out the baby with the bathwater
In effect, closing the Tier 1 visa category is a case of throwing
out the baby with the bathwater as UHNW immigrants no longer have
a clear path to UK residence.
Britain has always sought to offer a welcoming environment to
wealthy, honest investors over many centuries. However, if
Britain wishes to retain a welcoming business environment for
overseas investors, then a steady logical and realistic hand is
required on the immigration portfolio tiller…offering sound
policies to entice UHNW immigrants.
Accordingly, I would like to propose a new Tier 1 passive
investor visa, but with the following changes:
1. Strict, clear security, source of funds and
anti-money-laundering procedures, both on initial approval and at
the time when the application for an indefinite (i.e. permanent)
leave to remain is made; and
2. If the authorities want to promote specific types of
investment (e.g. SME or VC funds versus publicly traded
shares), then it should make that a condition, rather than trying
to drive money to these sectors through the Start-up Visa – and
shoehorn in active management where it is neither needed nor
appropriate.
What next for the wealthy expats that the UK wants to
see?
There is now an atmosphere of discouragement and uncertainty
surrounding the laudable goal of attracting “big investors” to
live and work out of the UK.
Current non-doms, operating under increasingly tight regulations
and with the threat of anything from total cancellation to
restrictive and time-curtailed new conditions, will be planning
their own futures. Departure from the UK before the election will
be an active option.
As for potential non-doms? Although both Ireland and Portugal
have recently dropped their own “golden visa” programmes in the
past week, there are numerous other desirable destinations for an
UHNW international family. Their European options include Monaco,
Switzerland, Italy, Greece, Malta and Cyprus. Further afield,
destinations like Dubai, Singapore and even Canada are
available.
If Britain wants to retain and attract wealthy expats, there is a
lot of proper analysis of the facts and work to be done by the
Treasury and the Home Office to make them come and then stay.