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London & Capital On The UK Visa Programme For HNWIs - White Paper
Mark Estcourt
London & Capital
23 August 2013
London & Capital,
the wealth management firm which specialises in issues such as immigration,
cross-border wealth management and wealth structuring for high net worth
clients, examines the operation of visas aimed at wealthy individuals looking
to live in the UK.
This White Paper is intended to drive debate; the editors of this publication
are pleased to share these insights but as always, stress that they do not
necessarily agree with any specific opinions expressed. The author of the paper
is Mark Estcourt, executive director, head of immigration, at the firm. Despite the effects of the downturn being felt particularly
strongly in the UK, the country has remained an attractive proposition for high
net worth families living abroad who are considering relocating. Recent studies have placed the UK in the top two global cities for
high net worth inhabitants and top four for billionaires. Other studies have
placed London just behind New York as the most influential global city
for the high net worth bracket, suggesting its attraction is set to continue. When we speak with clients, notably non-EU citizens from Russia, the CIS states, China, US and the Middle East, about their
primary reasons for relocating to the UK,
they point to the UK’s
housing market, strong financial sector and excellent private education system.
Most are wealthy international citizens entering the UK via the Tier 1 Investor Visa. We
have seen many of these clients fall foul of pitfalls arising from being poorly
advised or honest mistakes before meeting us. A Tier 1 investor visa is for those willing to invest £1 million
in the UK
economy for residency and/or citizenship. In return they are allowed an initial
three years and four-month residency with the possibility of extension if they
meet certain criteria. There are also programmes available for £5 million and
£10 million, each with progressively shorter investment terms. Providing the
conditions set out by the UK Home Office are met, there are relatively few
requirements set out for applicants: there is no language requirement, for example,
and no requirement to work. The visa moves applicants substantially closer to
the residency criteria for full citizenship in the UK, which currently sits at five
years. However, the rules on how the money must be invested are
strict. Evidence needs to be given of sufficient funds held in a bank account (onshore
or offshore) for three months, prior to the visa being granted. The funds then
need to be transferred to a custodian / wealth manager for investment in
suitable strategies within 90 days, providing a statement of all transactions.
The funds must only be invested in UK
gilts, UK bonds, UK equities and
property, with a minimum of 75 per cent held in investments. This can wrong-foot many applicants. Any reputable
investment firm will need to follow clear and detailed due diligence procedures
prior to investing on a client's behalf. It can take time to put the money to
work into the market. This is where boutiques sometimes have the edge - the
quickest we have ever invested a client's portfolio was within 24 hours, when a
Russian client who had been poorly advised faced the prospect of withdrawing
her son from his London school and returning to Moscow to reapply.
However, this is the exception and a more measured and timely approach to
investing is always beneficial not least because it ensures that investments
can be made in a more strategic manner. There are also ongoing requirements. The portfolio, once
invested, cannot drop below the minimum investment level. If this happens, it
will threaten residency eligibility. A responsible investment manager needs to
ensure that short-dated bonds are not allowed to lapse into cash, for example,
and that they are immediately reinvested. They must be cognisant of changes in
market movements that may bring the fund below its investment level. The way we
manage this issue is by providing our clients with a “buffer” facility,
typically 3-7 per cent of the overall fund, held in cash with no fees to the
client. Of course, the requirements for the investment are not just
compliance requirements. Individuals will have their own investment
requirements, risk tolerance and investment preferences. It is vital that
concepts such as diversification and risk management are not forgotten
alongside a close adherence to the rules. The temptation may be to invest
solely in very low risk assets, such as gilts but that may not be the “safest”
option in a climate of high inflation and low interest rates. There are also more nuanced considerations. People come to
the UK
with families who may not speak the language, unaware of the complexities of
the British school system, with the wherewithal but perhaps not the expertise
to buy a house. They need help in finding homes, schools, English teachers and
getting their lives established in the UK. They may need help with
business start-ups, employment opportunities and tax planning. In other words,
they need a supportive and trusted adviser who can direct them to right
partners and professionals. Wealth does not necessarily make starting a new
life in a foreign country seamless. On the investment side, we have several strategies,
comprising gilts, bonds and equities for this part of the market - strategies
that have a 27-year proven track record. The focus and heritage has always been
to preserve capital, which is ideally suited to this type of portfolio. We also
have a strong history in the family office market, with all the connections,
client servicing and concierge expertise that it brings. The combination of
these skill-sets is a necessity for the Investor Visa programme. Getting it right can bring considerable upside: The ideal
scenario is that the investment portfolio will meet all the compliance
requirements and demonstrate steady growth over the term. The requirements for
extending a stay in the UK
are straightforward and applicants will qualify for indefinite leave to remain
after three years and four months and ultimately citizenship after five years.
If the criteria are met, an applicant may bring dependents and make use of UK education
and healthcare. The terms of residency are relatively generous, with investors
having to stay in the country for at least half the year. Of course, there are a number of ways it can go wrong. This
can be extremely disruptive: applicants may have children at school, they may
have bought property, they may have commercial or employment interests. If the
criteria are not met, they face the prospect of leaving the country and
beginning the process again. There are a number of ways it can go wrong, but
the most common in our experience is: poor investment decisions leading the
portfolio falling below the minimum investment threshold, assets are not
invested in the right investments (like wrappers involving ISAs and Pensions
for example), and a failure to meet the deadline for investment - some criteria
where our competitors are falling foul. There are a lot of different strands that need to be brought
together successfully to ensure that the application and investment process
runs smoothly. We have been operating in this market for some time and are
well-aware of the pitfalls of poor advice and the advantages of good advice. We
aim to be a trusted partner for people starting a new life in the UK.