London & Capital, the wealth management firm which specialises in issues such as immigration, cross-border wealth management and wealth structuring for high net worth clients, examines the operation of visas aimed at wealthy individuals looking to live in the UK. This White Paper is intended to drive debate; the editors of this publication are pleased to share these insights but as always, stress that they do not necessarily agree with any specific opinions expressed. The author of the paper is Mark Estcourt, executive director, head of immigration, at the firm.
Despite the effects of the downturn being felt particularly strongly in the UK, the country has remained an attractive proposition for high net worth families living abroad who are considering relocating.
Recent studies have placed the UK in the top two global cities for high net worth inhabitants and top four for billionaires. Other studies have placed London just behind New York as the most influential global city for the high net worth bracket, suggesting its attraction is set to continue.
When we speak with clients, notably non-EU citizens from Russia, the CIS states, China, US and the Middle East, about their primary reasons for relocating to the UK, they point to the UK’s housing market, strong financial sector and excellent private education system. Most are wealthy international citizens entering the UK via the Tier 1 Investor Visa. We have seen many of these clients fall foul of pitfalls arising from being poorly advised or honest mistakes before meeting us.
A Tier 1 investor visa is for those willing to invest £1 million in the UK economy for residency and/or citizenship. In return they are allowed an initial three years and four-month residency with the possibility of extension if they meet certain criteria. There are also programmes available for £5 million and £10 million, each with progressively shorter investment terms. Providing the conditions set out by the UK Home Office are met, there are relatively few requirements set out for applicants: there is no language requirement, for example, and no requirement to work. The visa moves applicants substantially closer to the residency criteria for full citizenship in the UK, which currently sits at five years.
However, the rules on how the money must be invested are strict. Evidence needs to be given of sufficient funds held in a bank account (onshore or offshore) for three months, prior to the visa being granted. The funds then need to be transferred to a custodian / wealth manager for investment in suitable strategies within 90 days, providing a statement of all transactions. The funds must only be invested in UK gilts, UK bonds, UK equities and property, with a minimum of 75 per cent held in investments.
This can wrong-foot many applicants. Any reputable investment firm will need to follow clear and detailed due diligence procedures prior to investing on a client's behalf. It can take time to put the money to work into the market. This is where boutiques sometimes have the edge - the quickest we have ever invested a client's portfolio was within 24 hours, when a Russian client who had been poorly advised faced the prospect of withdrawing her son from his London school and returning to Moscow to reapply. However, this is the exception and a more measured and timely approach to investing is always beneficial not least because it ensures that investments can be made in a more strategic manner.
There are also ongoing requirements. The portfolio, once invested, cannot drop below the minimum investment level. If this happens, it will threaten residency eligibility. A responsible investment manager needs to ensure that short-dated bonds are not allowed to lapse into cash, for example, and that they are immediately reinvested. They must be cognisant of changes in market movements that may bring the fund below its investment level. The way we manage this issue is by providing our clients with a “buffer” facility, typically 3-7 per cent of the overall fund, held in cash with no fees to the client.