Not every tax incentive works – at least to start with. Non-doms had been given a carrot to encourage them to bring their wealth from offshore into the UK economy: the Business Investment Relief (BIR) was set up by the government in April of last year to complement initiatives such as the Enterprise Investment Scheme.
However, the FT revealed last month that just seventeen applications had been made for BIR, yielding a total of £13.3 million in investment. The chief criticism of the scheme was the amount of red tape, paper work and confusion wealthy individuals ran into when trying to access the tax break.
‘In the early days there was some confusion in terms of how the scheme would actually operate,’ concedes Simon Ruthers, private clients manager at Oxford Capital. So he decided to come up with his own way of helping clients access BIR, offering foreign investors easy access to top quality EIS investments, with up to 45 per cent income tax deferral through Business Investment Relief and 30 per cent EIS tax relief. Having liaised with lawyers and HMRC to give a ‘positive client experience’, he can now ‘be certain we can deliver a process that is robust but also not too onerous.’
Zeitgeist dictates that such schemes should be carefully scrutinised for tax avoidance practice. Despite providing millions in investment to approximately 18,500 small and medium businesses, the Enterprise Investment Scheme (EIS) was criticised for providing a vehicle for tax dodgers.
BIR undoubtedly has a similar latitude for those seeking to limit their tax footprint, especially when it comes to inheritance. As Ruthers points out: ‘The scheme provides the ability to claim business property relief, which is a valuable IHT relief, which can reduce the value of the investment by 100 per cent so as to counter that particular issue.’
But engaging those reluctant to expose their wealth to tax or risk by meeting them halfway may well be prudent fiscal policy. On whether the BIR tax break was a savvy concession to gain investment Ruthers said: ‘Absolutely. The engine room of the economy is private limited companies. The key to success there is to have funding available for those businesses.’
As well as this, the inherent transparency and clarity will mitigate unscrupulous practice and give much needed common ground for the tax weary and the Treasury, as well as certifying the BIR products on offer: ‘From our prospective, being a provider of an endorsed strategy, in terms of this being an arrangement the government has put in place to support inward investment… it’s obviously a positive.’
Overall the fund management industry’s embracing of BIR to plough lucrative sources of non-domicile capital into the economy can only be a good thing. It provides a fillip for the financial sector, gives an incentive for investment and shows Britain is open for business.