The Business Investment Relief (BIR) legislation was introduced on 6 April 2012 although was subject to amendments from 6 April 2017.
Business Investment Relief provides relief from tax under the remittance basis for non-UK domiciled and UK resident individuals bringing funds to the UK for the purposes of making qualifying investments. Where those funds are invested within 45 days of being brought into the UK, the income or gains which those funds may be made up of are not treated as remitted.
The investment must take the form of a subscription for, or acquisition of, shares or securities (hereafter ‘shares’) of the target company or a loan (whether secured or unsecured) to that company. Two conditions must be satisfied:
The first condition:
The target company is not listed on a recognised stock exchange (investment in AIM companies is possible) and is one of the following eligible companies:
An eligible trading company is one which carried on one or more commercial trades or is preparing to do so in the next five years. Carrying on commercial trades must be substantially what the company does or is reasonably expected to do once it begins trading.
An eligible stakeholder company exists wholly for the purpose of making investments in eligible trading companies and it holds one or more such investments or is preparing to do so within the next five years.
This is a new category. An eligible hybrid company carries on one or more commercial trades or is preparing to do so within the next five years, or it holds one or more investments in eligible trading companies or is preparing to do so within the next five years. To qualify, the carrying on commercial trades and/or making investments in eligible trading companies must constitute substantially all of what it does or is reasonably expected to do once it begins operating.
An eligible holding company is a member of an eligible trading group or, broadly, of a group that is reasonably expected to become an eligible trading group within the next five years and:
- An eligible trading company in the group is a 51% subsidiary of it, and
- Where the ordinary share capital that it owns in the eligible trading company is owned indirectly, each intermediary in the series is also a member of the group
Trade includes a property development or rental business and certain preliminary activities.
The five year rule was previously a two year rule.
The second condition is that neither the taxpayer nor any ‘relevant person’ (such as a spouse, minor child or grandchild, or related trust or company) has obtained, or become entitled to obtain, any benefit that is directly or indirectly attributable to the making of the investment.
Potential chargeable event
If the investor sells the investment, the original tax relief can be withdrawn unless the funds are taken offshore or reinvested within ninety days. After a disposal, which includes a winding up, there is a period of 45 days for the proceeds to be taken offshore or reinvested, beginning when the proceeds first become available to the investor. The period may be extended in exceptional circumstances.
A ‘potentially chargeable event’ includes:
- A disposal of all or part of the investment
- The company ceases to be eligible
- Value is received by or for the benefit of the taxpayer or a relevant person
- The company remains non-operational five years after the investment was made