Poor investment choice

When the old-style investor visa was introduced almost 20 years ago, there was, even in those pre-UKIP days, a predictable uproar, with one of the leading broadsheets running the headline: "British passports for sale to rich foreigners." This demonstrated a lack of understanding about the investor visa, which in reality, is what is known as a 'residence by investment' offering.

The government decided that it would be of benefit to the UK to attract rich foreigners to live here.

The visa route enabled non-EEA nationals who had £1m in liquid funds to effectively buy the right for themselves and their families to live in the UK, by putting at least 75 per cent of the £1m into qualifying investments (gilts or British companies). They did not gift it to the UK - they merely had to invest in the economy for four (later five) years while retaining ownership. They also had to acknowledge that they were to be tax resident in the UK.
If they wanted to 'buy' the right to live in the UK, they had to pay tax on the gains and income deriving from the £1m.

All applicants were subject to the usual background checks by the Home/Foreign Office to ensure that undesirable individuals did not slip through the net. Once approved, residence under the visa led to permanent residence after four years (also increased to five) and eligibility to apply to naturalise after a further year and acquire, what is for many investors, the holy grail of a British passport.

Changes were made to the scheme in January 2004, allowing the applicant to use money borrowed from a UK-based and regulated financial institution, provided that they had net assets of at least £2m. When the points based system was introduced in 2008,
the old-style investor visa became the Tier 1 (investor) visa.

The number of applicants have increased significantly, rising to some 560 (with 1030 dependants) in the year ending Q3 2013, with Chinese and Russian nationals making up the largest proportion. But no one had ever analysed what (if any) benefit these investors have brought to the UK.

Enter stage left the Migration Advisory Committee (MAC) which in late 2013 was commissioned to "consider whether the investment thresholds are appropriate to deliver significant economic benefits for the UK, in particular the minimum £1m threshold".

Its conclusion, published in February 2014, was that, even if this route confers less benefit to the UK than is normally asserted, there "may be a case for retaining it to signal that the UK is open and welcoming to people who wish to contribute to the wellbeing of UK residents". But the MAC warned that it would "be injudicious for the UK to enter a "race to the bottom", matching special offers introduced elsewhere.

One of the MAC's headline findings was that most Tier 1 (investors) invested their funds in gilts which, when considered against a backdrop of the government selling around £300m of gilts every day, resulted in the funds being 'lent' to the UK by the investors, amounting to less than two days of our budget deficit. Encouraging alternative investments, such as infrastructure bonds, collective investments and venture capital to drive investment away from gilts, was therefore high on its list of recommendations.

Also among its recommendations were increasing the threshold to £2m and removing the unloved 'topping up' rule, which penalised investors twice in the event of a sustained drop in the stock market (and which appeared to be one of the drivers to the safety of gilts).

These were introduced in the recent changes, as was the abolition of the 75:25 split between permitted investment and the balance of funds.

But the government baulked at
the real substantive changes, the ones that will better target investment that will benefit the UK economy, saying that it will initiate formal consultation on this "in due course".

With the election due in six months, it remains to be seen whether this will happen in time to be implemented before the election. Until then, all bets are off.

In the meantime, the increase in the threshold to £2m is not anticipated to reduce the current level of demand for these visas.

Philip is head of European immigration at Withers