Brexit and investment migration to the UK
Joint authors: Kamal Rahman (partner & head of immigration), Fran Rance (associate) and Natalie Loader (associate), Mishcon de Reya LLP, London
The UK has a long history of welcoming talent and investment from overseas. This practice 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. However, immigration policy in the UK is currently in a state of flux, and there is uncertainty surrounding the future landscape of migration to this country. This uncertainty 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 come under increasing pressure to reduce the numbers of individuals migrating to its shores. Britain once had an open door policy when it came to immigration but since the late 20th century, rising immigration in the UK has triggered a debate about immigration controls. As part of its Brexit agenda, the UK government has pledged to introduce new migration controls for European Economic Area (EEA) nationals and their family members and is also expected 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?
With the UK set to leave the EU in March 2019, the detail concerning the future relationship between the UK and the EU, including trading and immigration arrangements (amongst many other matters), remains unknown. The UK Prime Minister, Theresa May, has given several speeches on the topic of Brexit, but the landscape of postBrexit Britain is still up for negotiation. On 17 January 2017, 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 the government intends to impose restrictions on EEA nationals and their family members entering the UK after Brexit. 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 formalize their status. It is a common misconception that all EEA nationals have the right to formal residence in the UK (by way of an immigration document issued by the Home Office, such as a permanent residence card). In reality, 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 have your right of residence in the UK recognized by the Home Office, you (and any family members who you wish to include in your application) are required to hold ‘’comprehensive sickness insurance’’ (CSI). Those who wish to apply for permanent residence must be able to show that they have held CSI for a full five year period. What constitutes CSI is unclear. The Home Office’s policy guidance tells caseworkers that CSI is that which covers ‘’the costs of the majority of medical treatment [the applicant] may receive in the UK…’’ The government has also stated that CSI 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 the UK if they were unaware (as many are) of the CSI requirement. This is also counter-intuitive as many high net worth applicants have more than sufficient funds never to require CSI, since they have ample means to meet the cost of the best healthcare available. This argument, however, has not been accepted by the UK immigration authorities, leaving the very people the UK seeks to attract in limbo. A study by the Institute for Government in the UK (IFG) states that two million of the three million EEA nationals currently in the UK have resided here for five years or more, and could therefore qualify for permanent residence. Many of the remaining one million would qualify in 2019, by the time the UK is expected to leave the EU. The IFG’s report notes that in order to process the applications of all those currently eligible for a residence document by the time the UK leaves the EU, the Home Office would need to make approximately 3,600 decisions per day. Currently, the Home Office is making approximately 650 decisions per day. At the Home Office’s current rate, it would therefore take 11 years to process the millions of applications from EEA nationals residing in this country. The UK government has remained silent on how it will address this issue. Clearly, there will be changes to the current rights of EEA nationals to reside in the UK as a result of Brexit, and the UK government’s reassurances in this regard have fallen far short of what EU campaigners and the EU27 desire. In a leaked Home Office document concerning the future of immigration policy in the UK, it appears that the government plans to dramatically reduce the numbers of low-skilled migrants coming to the UK’s shores. It also describes plans to place tougher restrictions on the rights of EEA nationals to settle in the UK, and in particular on their right to bring in family members. The impact of such measures on both the UK economy and population as a whole could be huge. There are numerous questions which will need to be addressed in light of the UK’s exit from the EU 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? How will the UK ensure that it attracts and retains talent in this country? The answers to such questions, and to many others, remain to be seen. By seeking to set laws at a national level, the UK has implied that it will have the ability to forge new arrangements with nonEEA countries after Brexit. For example, on a recent trade visit to India in November, Theresa May said the 33-strong delegation had sealed deals worth £1billion, laying the groundwork for more than 1,300 jobs in the UK. However, YK Sinha, India’s High Commissioner to the UK, has warned that after Brexit it may take up to a decade for the two countries to negotiate a free trade deal, and that the “free movement of people and professionals” would be a crucial component of any deal. In other words, Britain must accept higher levels of immigration from India if it hopes to sign a free trade agreement after Brexit. Similar views have been expressed by other non-EEA countries with whom the UK could potentially create agreements, such as Australia. Currently, whilst EEA nationals may enter the UK to work without a visa, non-EEA nationals who wish to work in the UK are usually required to apply for sponsorship under Tier 2 of the Points Based System, which obliges them to meet minimum skill and salary levels. There is a monthly cap on the number of workers who may enter the UK in this capacity, and such a cap was reached in both December 2017 and January 2018, meaning that many workers with valuable skills were unable to make visa applications in December 2017 and January 2018. After Brexit, it is likely that the UK will need to overhaul its current immigration system in order to accommodate the numbers of individuals applying for visas to work in this country. Whether specific deals will be struck to facilitate the movement of workers from certain countries such as India remains to be seen. Whilst the impact of Brexit on economic migration to the UK is likely to be huge, it is also likely to have ramifications for those wishing to invest in the country.
IMPACT ON THE TIER 1 (INVESTOR) VISA
What long-term impact the UK’s exit from the EU will have on high net worth migration to the UK is difficult to predict before Brexit. However, in the short-term it appears that, despite the political and economic uncertainty triggered 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 is a fantastic option for those with the capacity to invest in the UK. It allows a high degree of flexibility and allows the main applicant and their qualifying family members to live, work, study and set-up a business in the UK without restriction. The visa is aimed at those with access to at least £2million to invest in 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. Once permanent residence (known as Indefinite Leave to Remain in the UK) is achieved, applicants may withdraw their investments. 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. Before the Referendum decision of June 2016, the number of individuals applying for Tier 1 (Investor) visas had been on the decline. 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 must therefore 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 180 days of any 12 month period. 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, adhering to these requirements is impossible. 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. The dependants of a £5million or £10million investor are still required to wait at least five years to acquire settlement rights. They therefore cannot settle in line with their investor family member, thus falling short of the ultimate goal of many families. On 11 January 2018 the Home Office announced further changes to the settlement rules which have a significant impact on Investors. For any visa granted on or after 11 January 2018, dependant partners of Point Based System migrants, including Tier 1 (Investors), must (in addition to the main applicant) also not be absent from the UK for more than 180 days in any 12-month period if they wish to qualify for settlement. Before this change in the rules, the absences of partners were not scrutinised and partners of Investor migrants (who were often the wealth generators) could travel freely. The Home Office now expects both the main applicant and their partner to meet the residence requirements if they wish to apply for settlement. This change in the rules will have a huge impact on the partners of Investor migrants, as well as on their children because, in general, the children of Tier 1 (Investors) can only obtain settlement if both parents also obtain settlement. Moreover, the way in which absences from the UK will be calculated has also changed. The Home Office will now calculate absences on a rolling basis, and can assess absences in ‘’any 12 -month period’’ they chose to look at, rather than looking at a defined 12-month period. This means that it is much harder for clients to manage their travel and to seek to ensure compliance with the rules for settlement. 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 six 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 fact that high net worth individuals are prepared to obtain citizenship of another EEA country in order to reside in the UK is indicative of the continuing appeal of the UK within the high net worth community. The option of acquiring a second passport in order to facilitate residence in another country is however of course only open to individuals whose current nationality and personal and political circumstances make this permissible. However, the anticipated withdrawal of freedom of movement rights for the UK after Brexit would dramatically affect the appeal of citizenship by investment programmes being offered by other EEA countries for those wishing to obtain an EEA passport in order to reside in the UK. High net worth individuals wishing to reside in the UK would therefore have to revert to domestic UK immigration routes. Indeed, following the outcome of the Referendum vote, a marked resurgence 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 number of applicants has continued to rise, with 75 applications in the first quarter of 2017 and 85 applications in the second quarter of 2017. Chinese and Russian nationals are currently the biggest contributors by number. The data also highlights increasing applications from Turkey and India, two countries which previously have not shown significant numbers of applicants. The reasons for the rise in Tier 1 (Investor) applications are likely to be threefold: 1. The drop in the value of the pound following the EU referendum; 2. 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 3. 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 second quarter of 2017 does not yet match the pre-November 2014 levels, it represents a significant increase and 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. In the aftermath of the Referendum decision, 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