The UK continues to be an attractive destination for high-net-worth individuals. The state's practice of welcoming talent and investment from overseas has led to the creation of a diverse and culturally rich society which appeals to those seeking not only tax efficiency, but political stability, excellent educational opportunities and the benefits that flow from the UK’s tradition of upholding the rule of law.
The UK's immigration policy is, however, in a state of flux. This emanates, most notably, from the Referendum decision of 23 June 2016, in which the UK public voted to leave the European Union (the ''EU''). Immigration was at the centre of the debate surrounding the UK's continued membership of the EU and the UK government has, in recent times, come under increasing pressure to reduce the numbers of individuals migrating to its shores.
Following the outcome of the Referendum vote, the UK government is predicted to modify the rights of European Economic Area (''EEA'') nationals and their family members to reside in this country, and is also likely to introduce changes to the UK's domestic immigration system. Such changes will inevitably impact the ways in which both non-EEA and EEA individuals, including those with the capacity to invest, seek to come to this country.
The end of free movement?
On 17 January 2017, the UK Prime Minister, Theresa May, announced her priorities for the government's Brexit negotiations in her much-anticipated Lancaster House keynote speech. Her priorities included the "control" of migration between the UK and the EU: the Prime Minister confirmed that it is very probable that restrictions will be imposed on EEA nationals and their family members entering the UK.
Clearly, the imposition of such controls would represent a seismic shift in the landscape of UK immigration policy.
Currently, qualifying citizens of EEA countries, and certain non-EEA family members, have the right to live in the UK without a visa by virtue of EU free movement law. However, after Brexit, this is likely to change, and the current rights of EEA citizens and their family members to reside in the UK are expected to become more restrictive.
At present, those who have resided in the UK for five years or more under European law may qualify for permanent residence and -potentially - British citizenship, subject to meeting the relevant rules. EEA nationals who have resided in the UK for less than five years may qualify for a registration certificate. Similarly, the non-European family members of EEA nationals, such as spouses/civil-partners, children or other dependants, may also be able to apply for an EEA family permit, residence card or permanent residence card to formalise their status. Whilst it is unclear whether those who have documentation (i.e. an immigration document issued by the UK government) will remain protected, it is highly likely that those without documentation will be more vulnerable to any adverse changes in the law.
It is a common misconception that all EEA nationals have the right to formal residence in the UK, and only those who meet certain qualifying conditions are eligible to have their right of residence recognised. For example, if you are a student or a self-sufficient person and wish to obtain a right of residence in the UK you (and any family members who you wish to include in your application) are required to hold ''comprehensive sickness insurance''. Those who wish to apply for permanent residence must be able to show that they have held comprehensive sickness insurance (which covers them in the UK) for a full five year period. What constitutes comprehensive sickness insurance is not entirely clear. The Home Office's policy guidance tells case workers that ''you can accept an EEA national or their family member as having comprehensive sickness insurance if they hold any form of insurance that will cover the costs of the majority of medical treatment they may receive in the UK...'' The government has also stated that comprehensive sickness insurance means ''full health insurance'', although it does not define what ''full'' means. Clearly, students and self-sufficient persons, who may have resided in the UK for a large part of their lives, will be adversely affected and unable to obtain a permanent right of residence in this country if they were unaware (as many are) of the comprehensive sickness insurance requirement.
The uncertainty surrounding UK immigration policy after Brexit has not been assuaged by recent events in Parliament. Despite the concerns raised by Peers, on 13 March 2017, Peers backed down over their proposed amendments to the government's ''Brexit Bill'', which included amendments seeking to guarantee the rights of EEA nationals living in the UK. Parliament has now paved the way for the government to trigger Article 50 of the Lisbon Treaty, due to take place on 29 March 2017. This will commence the UK's formal exit from the EU.
There are numerous questions which will need to be addressed in light of Brexit from an immigration perspective. For example, will existing EEA residents who are in the UK on a certain date have their rights preserved? If so, how would this be practically enforced? The answers to such questions, and many other, remain to be seen.
Impact on the Tier 1 (Investor) visa
What long-term effect the UK's exit from the EU will have on high-net-worth migration to the UK is difficult to predict in advance of Brexit.
However, in the short term, it appears that despite the relative political and economic uncertainty created by Brexit, the UK is continuing to attract overseas investors to its shores. Indeed, one notable outcome of the Brexit vote from a high-net-worth immigration perspective has been a significant rise in Tier 1 (Investor) applications.
The Tier 1 (Investor) visa allows those with access to £2million to apply to enter the UK by investing in either UK government bonds, UK equities or loan capital in active UK registered companies (excluding those principally engaged in property investment). Applicants can also bring their partner and minor children with them to the UK, who can all live, work, study or establish a business in this country throughout the validity of their visas. The initial visa is usually granted for three years, with the possibility to extend for an additional two.
Having spent five years in the UK on this visa or less, depending on the level of investment, the investor can become eligible to settle in the UK permanently. Those who invest at least £5million can become eligible to settle after three years, and those investing at least £10million can become eligible after just two years. Those who have spent five years in the UK (in compliance with the relevant requirement of their immigration status) can then apply for British citizenship and a British passport.
Limitations of the Tier 1 (Investor) visa
Although the Tier 1 (Investor) visa is largely unmatched in terms of the flexibility it offers, it is not without its limitations. Those who are eligible to apply for the visa are often cash rich and time poor. They are commercially minded and astute individuals who operate on an international playing field. The Investor visa category does not address this: it is not entirely fit for purpose when it comes to the typical investor’s lifestyle and as a consequence had been being overlooked by some in favour of other international offerings.
For example, data from the Office of National Statistics in the UK showed that the number of Tier 1 (Investor) visas granted by the UK fell from nearly 3000 in 2014, to 708 in 2015, and only 217 in the first half of 2016.
The decline can be attributed in part to the doubling of the minimum level of investment from £1million to £2million in November 2014. However, it is not only the greater level of investment that has presented difficulties for potential applicants.
Following the change to the Investor visa rules in November 2014, the investor is now also required to have opened a bank account in the UK prior to applying for the visa, and therefore must have passed the bank’s stringent scrutiny regulations. This of course poses significant difficulties for nationals of certain countries, such as Iran, who often struggle to open a UK account in a timely manner as a result of the bank's interpretation of their regulatory obligations and/or international sanctions.
Furthermore, those who come to the UK on an Investor visa and who wish to acquire settlement rights are required to adhere to strict residence requirements which many struggle to meet. To qualify for settlement investors should reside in the UK for at least six months of every qualifying year. To qualify for citizenship, which is often the ultimate aim, the investor should not spend more than 450 days outside of the UK over a minimum five-year period. For the vast majority of clients, keeping to these requirements is impossible. Whilst the visa is aimed at international investors it penalises them for travel at the point of settlement (i.e. at the point of applying for Indefinite Leave to Remain in the UK). In a world of increasing international connectivity this is simply not workable for many investor clients.
Finally, although the category offers an accelerated settlement route for those wishing to invest more, this is no longer an option for the investor’s dependants. Although the absences of dependants are generally not scrutinised in the same way as those of the main applicant and, as such, it will often be the dependant partner who is in fact the wealth generator, the dependants of a £5million or £10million investor are still required to wait at least five years to acquire settlement rights. They cannot therefore settle in line with their investor family member, thus falling short of what many families want.
When faced with these restrictions, the options being offered elsewhere can appear more attractive to clients desiring UK residence, and who have the capacity to invest. For example, for a minimum investment of EUR 2million in the Republic of Cyprus, applicants can acquire a Cypriot passport, and with it the full rights and entitlements of European citizenship, within three months. Holding a Cypriot passport has enabled the individual to live and work freely in the UK by exercising EU Treaty rights. The Maltese Individual Investor Programme is similarly attractive and allows applicants to acquire Maltese citizenship and, thus, has enabled them to live and work in the UK under European law within a year, for an investment of around £1million. Moreover, both these programmes allow the applicant to invest in property, which is now prohibited under the UK Investor rules. The commercially-minded gravitate towards options which allow the maximum return on their investment, and so being able to purchase a home and invest in property is appealing.
In light of Brexit, however, and the probable termination of freedom of movement rights under European law, it is possible that citizenship by investment programmes being offered by other EEA countries will become less attractive to foreign nationals hoping to obtain an EEA passport in order to reside in the UK. High-net-worth individuals wishing to reside in the UK will therefore have to consider UK domestic routes to long term residence in the UK. Indeed, a marked increase in Tier 1 (Investor) applications has already been seen.
Resurgence of the Tier 1 (Investor) visa
Prior to the Referendum vote, the UK had seen a marked decline in Tier 1 (Investor) visa applications. However, on 1 December 2016, the Office of National Statistics released figures on the number of Tier 1 (Investor) visas granted in the third quarter of 2016.
The figures revealed that the number of Tier 1 (Investors) entering the UK in the third quarter of 2016 was the highest number granted since the required investment threshold increased from £1million to £2million in November 2014. In the third quarter of 2016, the number of Tier 1 (Investor) visas granted by the UK rose from 40 in the previous quarter to 72: a staggering 80% increase. When compared to the same quarter in 2015, the third quarter of 2016 shows an increase of 56%.
The reasons for the rise in Tier 1 (Investor) applications are likely to be threefold:
- The drop in the value of the pound following the EU referendum;
- It is possible that citizenship by investment programmes offered by EEA countries (as described above) are becoming less attractive to foreign nationals hoping to obtain an EEA nationality to live in the UK, due to the uncertainty surrounding the continuance of freedom of movement rights under EU law; and
- Many fear that the UK government will tighten immigration rules in the aftermath of Brexit and so are pre-emptively seeking to secure their status before any adverse changes come into force.
Although the rise in the number of Tier 1 (Investor) visas granted in the third quarter of 2016 does not yet match the pre-November 2014 levels, it represents a significant increase. It indicates that, despite the pejorative press surrounding the UK's increasingly restrictive attitude towards immigration, the UK may be set to regain its position as a destination of choice for high-net-worth investors.
Competition for HNWs
Competition for the world's millionaires and the many economic contributions they bring - both in terms of direct investment and indirect spending - is fierce. Despite the uncertainty brought about by the outcome of the EU Referendum, the UK environment is continuing to maintain its foreign appeal: the wealthy continue to come here. In the aftermath of Brexit, the UK government has a window of opportunity to revisit its high-net-worth migration offering and to put in place a framework which more adequately attracts and enables international investment in this country, and allows the UK to reap the reciprocal benefits brought to it by such investment.
If you have any questions arising from this, please contact Fran Rance.