Brexit and investment migration to the UK

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 not only to those seeking tax efficiency, but also political stability, excellent educational opportunities and the benefits that flow from the UK’s tradition of upholding the rule of law.

Immigration policy in the UK, however, is currently in a state of flux, and there is uncertainty surrounding the future landscape of migration to the 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.

One of the key issues in the UK’s Withdrawal Agreement from the European Union is the determination of the rights of 3.5 million EU nationals currently living in the UK and 1.2 million UK nationals currently living in other EU countries.

Although Britain once had an open door policy when it came to immigration, since the late 20th century, rising immigration in the UK has triggered a debate about immigration controls, and the UK government has come under increasing pressure to reduce the number of individuals migrating to its shores. The topic of immigration loomed large in the UK’s referendum debate on continued EU membership. In the same month as the referendum vote, an Ipsos Mori survey reported that 33% of respondents indicated that the number of immigrants coming to the UK was one of the most important issues influencing their vote. Nevertheless, it is not disputed that immigration has contributed to the social and economic success of the UK.

In an open letter to citizens of the EU published on 18 October 2017, the UK Prime Minister Theresa May stated, “We want people to stay and we want families to stay together. We hugely value the contributions that EU nationals make to the economic, social and cultural fabric of the UK”. Promising that “citizens’ rights are [her] first priority”, she confirmed that it is not her intention to use citizens’ rights as bargaining chips in Brexit negotiations. Mrs May went on to promise: “I couldn’t be clearer: EU citizens living lawfully in the UK today will be able to stay [post-Brexit]” with an easy route to settlement (also known as permanent residency).

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 nationals, including those with the capacity to invest, seek to come to this country.

The end of free movement?  

Currently, EEA nationals are able to come to the UK with their family members to live (if self-sufficient), work or study with relatively few restrictions under freedom of movement rights – knowns as “Treaty rights” – enshrined in EU law. After five years in the UK exercising Treaty rights, EEA nationals and their family members can apply for documents evidencing their permanent residency in UK. With the UK set to leave the EU in March 2019, the details concerning the future relationship between the UK and the EU, including trading and immigration arrangements, remains unknown. Delays in the publication of the UK government’s white paper setting out the landscape of the UK’s post-Brexit immigration system are a cause of uncertainty for UK businesses and EU citizens in the UK alike.

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 by the time the UK is expected to leave the EU in 2019. 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 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.

There will be changes to the current rights of EEA nationals to reside in the UK.  In a leaked Home Office document concerning the future of immigration policy in the UK, it appears that the government plans to reduce the number of low-skilled migrants coming to the UK’s shores dramatically. 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 imposition of such controls would represent a seismic shift in the landscape of UK immigration policy and will, in turn, impact the UK economy.

Impact on the Tier 1 (Investor) visa

The long-term impact the UK’s exit from the EU will have on high-net-worth migration to the UK is difficult to predict. 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 provides a high degree of flexibility and allows the main applicant and their qualifying family members to live, work, study and establish businesses in the UK without restriction.

The visa is aimed at those with access to at least £2m 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 or “ILR”) is achieved, applicants may withdraw their investments. Those who invest at least £5m can become eligible to settle after three years, and those investing at least £10m can become eligible after just two years. Those who obtain ILR on an accelerated basis are able to apply for British citizenship and a British passport after five years in the UK.

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 £1 million to £2 million in November 2014. However, the increased investment level is not the sole reason for the decline.

Following a change to the Investor visa rules in November 2014, investors are now required to open a bank account in the UK prior to applying for the visa, and must therefore pass a UK bank’s stringent scrutiny regulations. This, of course, poses significant difficulties for nationals of certain countries 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 and their spouses/partners should reside in the UK for at least 180 days in any 12-month period. However, to qualify for citizenship, the investor should not spend more than 450 days outside of the UK over the five-year period immediately preceding the citizenship application. The vast majority of high net worth individuals have global lifestyles and adhering to these requirements is almost 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 £5 million or £10 million investor are still required to wait at least five years to acquire settlement rights, and one further year before being able to apply for citizenship. 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 residency 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 visa holders to manage their travel and to seek to ensure compliance with the rules for settlement.

When faced with these restrictions, obtaining citizenship of another EEA country to enable investors to reside in the UK under freedom of movement Treaty rights can appear more attractive. For example, for a minimum investment of €2 million 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. Similarly, the Maltese Individual Investor Programme enables applicants to acquire Maltese citizenship within a year for an investment of around £1 million. Both the Cypriot and Maltese programmes allow the applicant to invest in property, which is now prohibited under the UK Investor rules. Holding Cypriot and Maltese passports enables the individual to live and work freely in the UK in exercise of EU Treaty rights.

The fact that high net worth individual 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 end of freedom of movement rights for EEA nationals in the UK post-Brexit means that high net worth individual wishing to reside in the UK would have to revert to domestic UK immigration routes.

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 £1 million to £2 million 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.

Statistics released in the final quarter of 2017 show that 81 new investors came to the UK between October and December last year. Although this represented a slight decline from the third quarter of 2017 when 114 new investors arrived in the UK between July and September 2017, overall for 2017 there was an increase in investors as compared to 2016, despite the overall net decline in migration for 2016.

In 2017, Chinese and Russian nationals were the most represented nationalities by number. The data released also highlighted increasing applications from Turkey and India, two countries which previously have not shown significant numbers of investor applicants.

The reasons for the rise in Tier 1 (Investor) applications are likely to be threefold:

(i) The drop in the value of the pound following the EU referendum;

(ii) 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

(iii) 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. With changes to UK domestic immigration being planned, the UK government has an opportunity to revisit its high-net-worth migration offering and put in place a framework which adequately attracts international investment in this country. Despite the uncertainty brought about by the outcome of the EU referendum, the UK environment is continuing to maintain its foreign appeal.

 

The joint authors: Kamal Rahman (partner & head of immigration), Fran Rance (associate) and Natalie Loader (associate), Mishcon de Reya LLP, London

Posted in Articles, Editorial, Guest Content.

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