Thoughts from China: UK investment, immigration and tax

Insights - 01/08/2019

Morrisons Solicitors Partners Catherine Fisher and John Andrews, along with WSM Advisors Partner Simon Marsh, reflect on the biggest questions they were asked during their roadshow across China on “Doing Business and Investing in the UK”.

Why is now a good time to invest in the UK?

Whilst the uncertainty of Brexit presents a number of challenges, it also gives rise to some unique investment opportunities in the UK. In particular:

Real Estate: the spectre of Brexit and the lack of clarity as to whether the UK will leave the EU with a deal or not has led to the flat lining of property prices. Once there is more certainty over the outcome of Brexit, it is expected that property prices will begin to rise at some point post Brexit, reflecting the historical increases seen prior to the Brexit vote.

Shares: UK stocks have performed poorly since the Brexit vote, again due as much to the lack of certainty as to deal/no deal as to the vote itself. It is likely that the market will see an improvement in performance once the is certainty as to the Brexit route the UK will take.

Currency: the value of Sterling against the Chinese Yuan has fallen significantly since the Brexit vote. This means that it is cheaper for Chinese investors, in real terms, to invest in the UK, be it in real estate, stocks or other UK assets.

John Andrews, Head of Corporate & Commercial

 What immigration options are available to foreign businesses and investors?

The UK operates a points based immigration system for non EU nationals. The points based system has five tiers.

Tier 1: High net worth investors, entrepreneurs and those of exceptional talent
Tiers 2&5: Short-Stay visa for holiday or business; employer-sponsored for a variety of skilled, general, long and short term employment.
Tier 3: Low-skilled – not in operation
Tier 4: Students

With the exception of Tier 1, migrants must be sponsored before they can apply to enter or remain in the UK.

The Tier 1 entrepreneur visa was withdrawn in March 2019 but those of “exceptional talent” can still apply. You can apply for a Tier 1 (Exceptional Talent) visa if you work in a qualifying field and have been endorsed as a recognized leader (exceptional talent) or an emerging leader (exceptional promise). Investors may only need a short visit to the UK to complete a transaction and can apply for a Tier 2 Visa. Businesses may wish to transfer staff to a UK business under a Tier 2 visa, which allows a worker to remain for up to 5 years.

Catherine Fisher, Head of Dispute Resolution

What are the main tax considerations for potential investors in UK business or real estate?

Tax considerations apply at each stage of business and real estate investment in the UK:

  • On acquisition/investment
  • During ownership
  • On disposal

Acquisition

Stamp Duty Land Tax applies to real estate purchases at rates from 0-15% of the property price including a surcharge of 3%. With careful planning the surcharge may be avoided and the rate of tax can be minimised however planning needs to be done before the real estate purchase.

Stamp Duty may also apply to investment in a UK business at the lower rate of 0.5% and again it may be possible to structure the investment to minimise or avoid the tax.

Investors in commercial real estate will also need to consider the application of Value Added Tax to any investment or acquisition.

Ownership

During the period of ownership the profits from an investment will be subject to taxation depending on the ownership structure: income tax applies to individuals at rates from 20-45% and corporation tax at the rate of 19% applies to companies.

The corporation tax rate is much lower than the top income tax rates however investors in residential real estate will need to take account of the Annual Tax on Enveloped Dwellings in deciding if using a company structure is beneficial.

The investor should also maximise tax deductions for expenses and costs of finance and use all available tax allowances and reliefs to minimise any tax payable.

Disposal

Capital Gains Tax applies to all residential and commercial property disposals in the UK, including for those who are not UK tax resident, at rates from 10-28%. The disposal of other investments may not incur Capital Gains Tax depending on the tax resident status of the investor.

Inheritance tax is charged at 40% on the value of real estate in the UK in the event of the death of the investor, including investors resident overseas. Investors should consider preparing a UK will as part of any investment in UK real estate along with any planning to minimise any possible Inheritance Tax.

The key for all investors is to obtain professional advice at the earliest possible time to ensure the right structure is used to minimise tax liabilities and maximise the return at each point of their investment.

Simon Marsh, WSM Advisors Partner

For a full list of responses to frequently asked questions (FAQs), please click here

If you’re thinking about doing business or investing in the UK and want expert legal, tax or accounting advice, get in touch with John Andrews, Head of our Corporate & Commercial team; Catherine Fisher, Head of our Dispute Resolution Team; or Simon Marsh, Partner at WSM Advisors.

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Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.