Updated: Feb 10, 2022
Most investors want to establish the UK as a long term base, so it is particularly important to avoid disposal proceed use, income withdrawal, or fee/tax payments, inadvertently undermining the investment status. Those unconcerned with extension are still at risk of their visa being cancelled early if the investment is not maintained.
Market Fluctuations: The March 2019 rule changes have seen as welcome change in this area. Investments may now be carried at their purchase price, unless and until sold. This is a vast improvement for those investing in their own, or other unlisted, businesses, as it avoids the need to have periodic valuation reports. Further, the old rule requiring the investment to be ‘topped up’ to cover losses, has been removed for new applicants.
Disposal Proceed Use: Investors (and/or their investment managers) are free to trade as actively as they want, BUT, where any holding is sold (whether at a gain or a loss) the gross proceeds (the total from the sale of the portfolio, before any fees, taxes or other costs are deducted) must be re-invested in qualifying investments before the end of the next reporting period, or within 6 months of the date of completion of the sale, whichever is sooner.
Income Withdrawal: Most dividend, coupon, & interest payments generated by the qualifying investments can be withdrawn from the portfolio and used at the investors discretion. This freedom does not apply to interest or dividends deemed to be ‘part of the initial purchase’ eg when a share is ‘cum div’ at the time of purchase; the issue of bond coupons for not-yet-started semi-annual periods when the bond is purchased above par due to a relatively high coupon should be considered on a case by case basis.
Fee payments: Fees, whether for trade execution, investment management, or any other purpose, can not be funded from the £2m, or from the proceeds of sale. Where an investment manager deducts their fee automatically from funds under management, it is usually wise to invest more than the minimum £2m, so that repeated intervention / top-ups are not needed to prevent such fee deductions from jeopardising compliance with the visa requirements.
Tax payments: If investments are bought/sold, tax payments are to be expected, certainly for Stamp Duty (0.5% of transaction value) on share purchases, and probably on Capital Gains when disposing of an investment for more than its purchase price. These taxes must be funded from ‘new money’, permitted income withdrawal, or from initial investments in excess of the £2m minimum. They can not be funded from the profits of trading/investing the £2m: if you buy shares for £2m, and sell them for £2.2m, then you must re-invest the whole £2.2m and find other money to pay tax on the £200k capital gain.