Since the sharp economic downturn in 2008, European countries have increasingly turned to Foreign Direct Investment (FDI) to help sustain and develop fragmented economies across the continent. As such, various European countries including Spain, Portugal, Greece, Cyprus and Malta introduced Citizenship by Investment (CIP) programmes to attract this much-needed foreign investment by offering ‘golden visas’ to foreign nationals. These schemes typically involve investment in real estate and government bonds and shares in exchange for residency or citizenship.

The United Kingdom (UK) has also sought to attract FDI to the country in the same way, through the Tier 1 (Investor) route and has been successful in doing so since 2008 despite increases in the minimum investment requirement. With Brexit just around the corner, it is timely to re-examine the position of the route to settlement. This article will examine the UK’s ‘golden visa’, the advantages of obtaining one, and discuss the procedure in place to grant citizenship or permanent residence in lieu of investments in the United Kingdom.

Why get a second passport?

The reasons for attracting FDI are obvious, but why might an individual want a second passport? The main attraction of residence rights and citizenship in an EU country is the access and free movement rights that come with it. This is particularly advantageous for non-EU nationals who undertake business activities in the EU, allowing them to travel freely amongst the Member States without needing a visa. This flexibility is often vital to those in multinational business industries. There are currently two options for those non-EU citizens: residency, for those who want to live in the country, or citizenship, usually for those who want to remain in their home country.

Furthermore, a second passport provides additional security both in terms of assets and physical security. Many who apply for a second citizenship have particularly volatile situations in their home country, and such investments are often an insurance policy for those who wish to leverage both their assets and personal security across other countries in the event that something should go wrong back home.

The UK: a second home?

Typically, countries such as Portugal, Malta and Greece are popular destinations for those seeking an EU ‘golden visa’ because they are far less expensive than the Tier 1 (Investor) visa offered in the UK. For comparison, CIP’s in Malta start at around €150,000; the minimum investment required to be eligible for a Tier 1 Investor visa is £2 million.

Prior to Brexit, however, the UK still garnered appeal amongst non-EU investors as a gateway to the European single market. Investors were attracted to the UK by its stable economy relative to other countries such as Greece. As a result, the UK was able to place a much higher value of £1 million on Tier 1 (Investor) visas, while still being able to attract large amounts of FDI.

This attraction withered in 2014, however, when the UK increased the minimum investment required for the Tier 1 (Investor) route from £1 million to £2 million. As such the number of Tier 1 (Investor) applications dropped significantly, and the trend continued through 2015 into 2016 (https://www.ft.com/content/08d5b20e-28b5-11e6-8ba3-cdd781d02d89).

However, in the year after the vote to leave the EU ending September 2017, the number of Tier 1 (Investor) applications to the Home Office doubled, and the number of applications granted under this route has increased 66% from the previous year to 335 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/662550/immigration-statistics-jul-sep-2017snr.pdf). Those foreign nationals who had previously invested in other EU countries are now facing the reality that their Portuguese or Maltese passports will no longer allow free movement to the UK or residency rights after 29 March 2019. The consequence of this is that those investors wishing to keep or continue exercising these rights, will need to hold a UK passport. This could go some way in explaining the uptake in Tier 1 (Investor) applications in the recent year or so.

These recent figures confirm that Britain remains a desirable destination for high net worth individuals and FDI, with Brexit having a clear influence on the statistics. However, as negotiations continue over the UK’s withdrawal from the EU, thought must be given to how the UK will continue to attract high levels of FDI without the European connection. Whilst exploring the eligibility criteria of this route (below), discussion will also focus around how this route could become more attractive in the face of Brexit.

The Tier 1 (Investor) Visa

Developed in late 2008, the Tier 1 (Investor) visa allows you to invest £2 million or more in UK government bonds, share capital or loan capital in active and trading UK registered companies. More information about this is available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/673293/tier-1-investor-v11.0ext.pdf

In terms of the investment itself, the Home Office does have restrictions in place in considering what qualifies as part of the £2 million sum. The applicant is required to have invested the capital in the UK within 3 months of the investment start date, and applications that rely on leveraged investment funds will not be granted.

The Home Office will consider investments to be within the UK if they are invested in a company which:

  • Has its registered head office in the UK;
  • Has a UK business bank account showing transactions for the business that are current; and
  • Is subject to UK taxation.

This means that multinational companies considered to be acceptable and that investments can be held in foreign currencies if they are held with UK registered companies with a registered or head office in the UK.

Most importantly, the Tier 1 (Investor) route allows you to apply to settle permanently in the UK after five years if you invest £2 million. Those who can invest more, are incentivised by the opportunity to settle after three years if you invest £5 million, and just two years if you invest £10 million. It should be noted, however, that any dependant family members that you bring with you must always wait five years before they are eligible for settlement. Other jurisdictions in the EU allow dependants to apply at the same time as the main applicant for citizenship, within very short time frames. If this was to be replicated in the UK after Brexit, the investment opportunities available in the UK will undoubtedly be even more desirable in the future.

Finally, in order to achieve settlement, and ultimately citizenship a year later, the Tier 1 (Investor) has to meet the relevant residency requirements. To qualify for settlement, investors must reside in the UK for at least six months in every twelve-month period, and to qualify for citizenship, the investor should not spend more than 450 days outside the UK over a five-year period. For those who wish to exercise more flexibility and need to travel continuously, this can be a problem. It can be contrasted with Malta where the applicant must only show that they have bought a property and visited Malta once. This is another area in which the UK might look to amend the eligibility criteria in the years after Brexit, by reducing the residence requirement to compete with these alternative European citizenship routes.

The advantages of FDI in lieu of citizenship have been clearly elucidated, and it is evident that various countries and individual across the globe are benefitting from these advantages. The United Kingdom has always been recognised as an attractive country in which to direct this investment due to its stability and opportunities afforded in terms of UK and EU citizenship. With Brexit looming, statistics are showing that the UK is attracting more investors than ever before looking to secure their right to reside and work in the UK before departure from the EU.

In order for this trend to continue beyond Brexit, and to achieve continually increasing FDI, the United Kingdom will need to strengthen its appeal to attract investors directly into the country. This could mean future implementation of the aforementioned changes to the current entry and settlement routes to ensure that the United Kingdom continues as a favourable destination for FDI after Brexit.