Proposed overhaul of Tier 1 (Investor) route - MAC recommends visa by auction

Posted: 04/03/2014

The current Tier 1 (Investor) scheme allows applicants to obtain a visa to the UK provided they can demonstrate that they have £1 million of their own funds or funds which have been loaned to them by a UK registered financial institution. They are then required to invest a minimum of 75% of these funds in UK government bonds (otherwise known as gilts) or loan or share capital in UK registered trading companies.

In considering the question by the Government, the MAC looked into the current scheme and its disincentives, the benefits to the UK of this route, the factors affecting these benefits, and investors' motivation for investing in the UK. Following its assessment of these various factors, the MAC has made the following recommendations:

• To raise the minimum threshold to £2 million – the MAC highlights that the current threshold of £1 million has been in place since 1994.
• To permit wider investment activity – the current scheme specifies investments in UK government bonds or loan or share capital in UK registered and trading companies. Although the MAC does list some alternatives, no recommendation is made as to which would be most beneficial to the UK. However, the MAC does highlight the difficulties currently faced by investors wishing to invest in private companies as opposed to UK listed public companies and suggests relaxing the reporting requirements for these investments.
• To remove the topping up rule – this will mean that investors can have certainty as to the amount they will need to invest from the outset without the possibility of this rising with market fluctuations. Currently, investors need to continuously monitor their investment to ensure that the minimum levels are maintained and to add further funds when there is a shortfall. To avoid this, investors usually seek what they perceive to be the most stable investment, ie government bonds, which provide little return. The MAC found that this type of investment is akin to a loan which can then be returned to the investor and is therefore of little benefit to the UK.
• To remove the provision permitting investment funds to be sourced by way of a loan from a UK registered financial institution - the MAC found that this provision is hardly used due to the reluctance of the UK registered financial institution to provide the loan as it is difficult to rely on overseas assets as security for the loan.
• To introduce a premium route – this will replace the higher thresholds of investment of £5 and £10 million and will lead to accelerated settlement within two years. The threshold will be a minimum of £2.5 million. However, the number of visas under the premium route will be limited to 100 per annum.

Given the limited number of visas available, determining which applicants will be granted a visa would be by auction with places going to the highest bidder. It is not clear what due diligence, if any, will be undertaken to confirm existence of the funds or the suitability of the applicant. So, potentially, an investor could win the bid only to have their application for entry clearance refused. The MAC refrained from making a recommendation as to whether dependants of investors would be able to obtain settlement at the same time as the main applicant.

• To reduce the residence requirement for premium route – the residence requirement of 185 days in any given year to remain for those applying under the standard route but to be reduced to 90 days for those applying under the premium route.

For a comparison with the current scheme please click here.

The issues with the current scheme were put to the Government by Penningtons Manches last year and proposals on how the scheme can be enhanced were put forward. However, although some of the MAC recommendations do adopt these proposals, others do not. It remains questionable whether the recommendations will be implemented by the Government.

The MAC identified that the factors influencing investors' decision to come to the UK are stability, security of assets and a high quality education sector. However, the disincentives with the current scheme such as the inability to obtain accelerated settlement for dependants, stringent resident requirements, inflexibility on the type of investments and comparatively high financial threshold may mean that these investors opt to go to other countries with more attractive investment schemes.

To see how the UK compares with other countries, we have digested the figures provided by the MAC and summarised this in the attached table.

Those considering the Tier 1 Investor visa are urged to seek legal advice immediately.

Return to news headlines