Important changes to the United Kingdom’s Immigration Rules regarding the Tier 1 (Investor) route for high net worth individuals have been announced by the Government. These revisions, which were due to come into effect on November 6, 2014, include:  (i) raising the minimum capital requirement to GBP2 million; (ii) increasing the minimum investment requirement from GBP750,000 to GBP2 million; (iii) removing the ability to used borrowed funds to meet the capital requirement; (iv) Providing greater powers to refuse applications where funds are obtained unlawfully; and (v) removing the requirement to “top-up” investments.

Capital Requirement

Under these changes, which focus on the standard or basic entry level requirements under the investor category, the minimum capital requirement is to be doubled to GBP2 million.  This is the first time that the Government has raised this requirement since the investor category was originally introduced two decades ago. 

The rules in relation to this category are to be further restricted by removing the ability to use borrowed funds to meet the capital requirement and empowering the Home Office to refuse applications where it has “reasonable grounds” to believe that the applicant doesn’t have control over the funds or that they were obtained unlawfully.  Additionally, where the funds have been provided by a third party (e.g. by way of a gift), the “character, conduct and associations” of that party can also be taken into account.  This may well lead to the Home Office taking a more aggressive approach to verifying the source of an applicant’s wealth and reviewing the background to the funds being provided.  This issue will therefore need to be approached with more caution than previously as there is a risk that this greater scrutiny could lead to an increase in the number of applications that are refused.

Investment Requirement

At the same time as increasing the minimum level of capital required, applicants will now be required to invest the whole amount (rather than just 75% of the capital under the current rules) in certain prescribed qualifying investments i.e. share or loan capital in active and trading UK companies, or UK Government bonds.  This more than doubles the minimum investment requirement from GBP750,000 to GBP2 million and means that the distinction between (i) the investment, and (ii) the remaining balance of funds (making up to 25% of the remaining capital) which can currently be held in cash or a wider range of investments such as the un-mortgaged element of a property, will be removed.  This also means that applicants who wish to apply under the accelerated route towards permanent residency, by investing at one of the two higher investment bands, will now need to invest a significantly greater amount as 100% rather than 75% of the capital must be invested i.e. GBP5 million or GBP10 million respectively. 

On a more positive note, the rule which requires the qualifying investment to be “topped-up” if its market value falls below the minimum requirement is to be removed.  In a move designed to try and incentivize and steer potential investors away from relying solely upon relatively safe investments such as UK Government bonds, towards more risky investments that are potentially of more benefit to the UK economy, future applicants will only be required to purchase new investments if they sell some of their qualifying portfolio and need to replace it in order to maintain their investment at the minimum level. 

All of these changes will effect applications filed on or after November 6, 2014.  However, in order to ensure that existing Tier 1 (Investor) migrants are not adversely affected by these changes, transitional arrangements have been put in place so as not to have any effect on their status.  However, this does mean that existing investors will not be able to benefit from the more relaxed approach to “topping-up” investments.