UK: Double Relief For Non-Domiciled Investors

Last Updated: 6 February 2015
Article by John Ward

Enterprise Investment Scheme relief provides very generous tax incentives for individuals to subscribe up to £1 million in any tax year in the acquisition of shares in unlisted (which includes AIM quoted) trading companies. But for some non-domiciled individuals, the additional availability of Business Investment Relief makes such investments very interesting indeed.

Briefly, the tax benefits afforded to investments which qualify for Enterprise Investment Scheme (EIS) relief (provided in most cases that the shares are held for 3 years) are as follows:

  • the ability to offset 30% of the amount subscribed against the individual's tax liability in the tax year of subscription or the year before
  • exemption from capital gains tax on any gain realised on sale
  • in the event that the investment fails, generous loss reliefs
  • most likely, exemption from inheritance tax on the shares on the basis that they qualify for business property relief.

For non-domiciled individuals who use the remittance basis, an additional attraction is that investments in EIS companies are likely also to qualify for Business Investment Relief (BIR).

This relief is intended to encourage non-domiciled UK residents to invest unremitted income and/or gains in the UK.

Briefly, the main features of the relief are as follows:

  • (subject to certain time limits) no taxable remittance of the funds used to subscribe for shares in a qualifying company
  • on a subsequent sale of the shares, no taxable remittance as long as the sum originally invested is returned offshore within 45 days (or used to subscribe for shares in another BIR qualifying company).

The conditions for BIR are more generous than those which apply to EIS relief. In particular, there is no cap on the relief, and the relief can apply to property development or rental companies.

In combination, these reliefs are highly attractive for remittance basis users, as the following examples illustrate.

Pierre doubles his money

Pierre is UK resident but domiciled outside the UK. He has been UK resident for five years and so does not need to pay a remittance basis charge.

He has £10 million of unremitted foreign income. He has no UK income.

Pierre brings £1 million of his unremitted income into the UK which he immediately uses to subscribe for shares in a company which qualifies for EIS relief and BIR.

As he does not have any UK income, he does not stand to benefit from the EIS income tax relief. Accordingly, in the same tax year as he makes his investment, he remits to the UK an additional £700,000 of income, on which approximately £300,000 of income tax would be payable.

Initial tax consequences:

  • even though he has brought income into the UK, Pierre is not treated as having remitted the £1 million
  • Pierre can remit £700,000 of his foreign income to the UK effectively tax free due to the EIS relief credit

Five years later, he sells his investment for £2 million.


  • of the £2 million proceeds, Pierre must return £1 million offshore within 45 days in order to avoid a charge to income tax, or alternatively re-invest it
  • Pierre can keep the £1 million gain element in the UK and it is exempt from capital gains tax.

Pierre loses the lot

What if Pierre's investment turns out to be a total failure?

On the negative side, he has of course lost his initial outlay of £1 million.

But, against that, he has managed to remit £700,000 of usable funds into the UK at no tax charge. If he had to pay income tax on the remittance he would need to bring £1.25 million into the UK in order to have £700,000 after tax. So looked at one way, £550,000 of the loss is theoretical.

Furthermore, his capital loss of £1million, less the £300,000 income tax relief which Pierre received at the outset, is allowable to reduce his taxable income for the year. In other words, Pierre can remit another £700,000 of his unremitted income without any liability to tax.

Assuming that Pierre needs to remit substantial sums to the UK, the investment would appear to be virtually risk free.

Looking at the cash position at the end of the day, the position may be summarised as follows:

  • If Pierre doubles his money, he has:
  • £9,300,000 of unremitted income offshore (£10 million less the £700,000 he remitted tax free); and
  • £1,700,000 onshore, which he can use to fund his UK living for a number of years

(a total of £11 million)

  • If Pierre loses the lot, he has:
  • £7,600,000 of unremitted income offshore (£10 million less his investment of £1 million, together and also the £700,000 he remitted tax free plus the further £700,000 he remitted when the investment failed); and
  • £1,400,000 onshore, which he can use to fund his UK living for a number of years

(a total of £9 million)

Contrast this with the position if Pierre needed £1,400,000 in the UK and did not make an EIS/BIR investment. In order to have £1.5 million in the UK after tax, he would need to remit approximately £2.5 million of income. The cash position would then be as follows:

  • Pierre would have only £7,500,000 of unremitted income offshore; and
  • £1,500,000 onshore.

(a total of £9 million)

So, in this example, by making the investment and losing his money, Pierre is no worse off than if he had simply remitted the income and paid tax on it.

Reducing risk

Although losing his entire investment may not be the disaster which it might at first have seemed to be, Pierre could spread his risk either by investing in a number of EIS companies or in a holding company which itself invests in companies qualifying for EIS relief and BIR.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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