The Home Secretary’s move to close the UK’s Tier 1 visa route for investors following growing strain on diplomatic relations with Russia is overdue, regardless of its specific purpose to restrict the potential for money laundering, fraud and illicit finance. The £2m qualifying investments under the United Kingdom’s so-called ‘Golden’ visa programme were passive, and although demonstrating wealth, did nothing to support UK job creation or the wider enterprise economy. If the Home Office required a commitment to “tangible economic impacts”, the offer of UK residency and citizenship would be a trade-off that the British public could understand and support.
Tax incentives such as the Enterprise Investment Scheme (EIS) have been successful and are credited with driving >£20bn of domestic investment into the UK enterprise economy. The problem is that this incentivises high-risk investment into tech-led companies with very large upsides and a high failure rate, effectively indemnified by the taxman. It is true that this drives innovation but starves capital from sensible businesses offering stable returns that tend to be based outside the South East of England (particularly London) – sectors like early-stage manufacturing and distribution – that would help rebalance the UK economy.
Foreign entrepreneurs do not benefit from EIS, which explains why 89% of the investments made through our company InvestUK are into non-tech companies. Channelling foreign investors away from passive investments, such as under the Tier 1 (Investor) visa route, into active investments under the UK Start-up visa and Innovator visa routes, means that entrepreneurs can be further encouraged to invest in less-fashionable, but important sectors and areas. In 2019 (the last ‘normal’ year before COVID-19), 360 Tier 1 (Investor) visa holders gained UK Entry Clearance, with direct investment of around £800m. Nearly all of this investment is ‘sterile’: invested in Gilts (when previously allowed) and now in rated listed corporate bonds in the capital markets.
Following the closure of the Investor visa route, prospective investors must now commit to ‘Enterprise Projects’ via the Innovator visa path. Under the Innovator visa programme, the Home Office requires that projects are innovative, viable and scalable, and typically require equity investment where there is a gap in the market. This could be because the project is an innovation entirely new to the market, or a strategy to apply investment where domestic equity hasn’t gone, perhaps because of perceived risk, absence of liquidity or a lower return on investment. People who otherwise would have applied via the Investor visa (Tier 1) path are generally less sensitive to these issues, because they are getting an alternative ‘win’ (the potential for UK residency) from their investment, and there is some evidence that such an approach would favour innovative investment strategies aligned with national priorities such as carbon-reduction and ‘levelling up’.
‘Residency-by-investment’ is a global marketplace, with over 70 countries offering different programmes of varying cost and rigour. The United Kingdom has always set a gold standard and although there was justifiable concern on where investor source of funds came from, our systems are substantially more robust than some European equivalents, and in a different league to some Caribbean programmes. It is likely that our most active competitors for talent – Canada and Australia, for example – will follow our example so we can then operate on a level playing field as we seek to attract the world’s best innovators to come and set up their businesses in UK.
If you’ve been affected by the closure of the UK Tier 1 Investor visa, our friendly and expert team are available to discuss your options. Contact us today to find out how we can help you.
InvestUK is not regulated by the Financial Conduct Authority and the Financial Services Compensation Scheme established for the protection of investors does not apply.