Business investment relief and the impact of non-dom tax reforms

Business investment relief allows individuals who used the remittance basis of taxation to bring foreign income and gains into the UK without paying UK tax, as long as the funds are invested in qualifying companies.

Due to the abolition of the rules for UK resident, non-domiciled individuals (non-doms) from 6 April 2025, changes are being made to business investment relief.

Benefits of business investment relief

A UK resident, non-dom can remit ‘clean capital’ (ie offshore funds that aren’t taxable when brought to the UK) into the UK without having to pay tax. However, it can be challenging to separate clean capital from non-UK income and gains, which are taxable when remitted to the UK, as they can be mixed together. The rules for remitting these mixed funds to the UK can make it difficult to extract the clean capital.

To encourage investment in UK business, business investment relief (BIR) allows UK resident non-doms to bring non-UK source income and gains into the UK without paying UK tax, provided they invest in qualifying companies.

Qualifying investments

There is no limit to the amount that can be claimed under BIR, but certain conditions must be met:

• The investment must be in a qualifying company (the ‘target company’ – see below).
• The investment must be in the form of shares (preference or ordinary, existing or newly issued) or loans.
• The investment must be made within 45 days of bringing the offshore funds into the UK.
• The investor or any ‘relevant person’ (such as a spouse, civil partner, children or grandchildren under the age of 18, trustees of a settlement where a relevant person is a beneficiary, or a participator in a close company) must not receive any benefit from the investment.
• When the investment is sold, the proceeds (up to the original investment amount) must be taken offshore or reinvested in another qualifying company within 45 days.

The target company

For an investment to qualify, the target company must be a private limited company (ie unquoted). Investments into partnerships (including into corporate partners) and unincorporated businesses do not qualify.

The company must:

• Carry on a commercial trade or be preparing to carry on a trade, within five years of the investment, or
• Hold one or more investments in an eligible trading company (or one preparing to carry on a trade), or
• Both carry on a commercial trade and hold investments in one or more eligible trading companies (a ‘hybrid company’).

Carrying on at least one commercial trade must be all, or ‘substantially all’, that the company does. The meaning of substantially all is not defined, but HM Revenue & Customs (HMRC) generally take substantial to mean at least 80%.

A holding company qualifies if it is part of an eligible trading group (ie all companies in the group are private limited companies and the group meets the 80% commercial trading test). A hybrid company must also pass this test for its trading and investment activities.

Any activity that is treated as a trade for corporation tax purposes, like farming, market gardening, and commercial land occupation (but not woodland), count as commercial trade for BIR purposes. This includes renting or leasing land or property (including residential property) and research and development activities.

Investments can be made through an offshore trust, company or nominee.

Withdrawing the relief

BIR may be withdrawn if a potentially chargeable event occurs and the appropriate mitigation steps aren’t taken within a specified grace period. If BIR is withdrawn, the foreign income and gains used for the investment will be treated as remitted to the UK for tax purposes.

Potentially chargeable events include:

• Selling some or all of the investment.
• The investor or a relevant person receiving value directly or indirectly from the investment. This rule isn’t breached if the value received is subject to income tax or corporation tax and is paid in the ordinary course of business on arm’s length terms. Dividends, market rate loan interest, or director’s remuneration which is commercial and commensurate with the duties undertaken should not breach the rule.
• The target company ceasing to be an eligible company.
• The company not starting to trade within five years, if it was preparing to trade at the time of the investment.

If the BIR conditions are breached, the whole amount used to make the investment is treated as remitted.

Before 6 April 2028, the mitigation steps are generally to remove disposal proceeds (up to the amount invested) from the UK or reinvest them in another qualifying company within 45 days of a potentially chargeable event. Where no cash proceeds arise (eg if the target company ceases to be an eligible trading company), the investor generally has 90 days to sell their investment and then another 45 days to remove the funds from the UK or reinvest the proceeds in a qualifying company. For companies that fail to start trading within five years, this deadline is increased to a (single, combined) two-year deadline.

Claiming business investment relief

If you’re intending to make a business investment you can ask HMRC for advance assurance as to whether the investment will be treated as a qualifying investment for BIR purposes.

The claim itself must be made on your self-assessment tax return for the year in which the investment is made.

Non-dom tax changes

For foreign income and gains arising from 6 April 2025, the remittance basis tax rules for non-doms are being replaced with a new residence-based scheme, known as the FIG or foreign income and gains regime, and there are various transitional rules. As a result of these changes:

• Existing BIR investments will continue to benefit from BIR until there’s a potentially chargeable event. If there is a potentially chargeable event, the only way to prevent a taxable remittance will be to take the FIG originally invested offshore, or to make another qualifying investment.
• There’s a temporary repatriation facility (TRF) available between 6 April 2025 and 5 April 2028, allowing former-remittance basis users to pay a lower rate of tax when they remit FIG that arose before 6 April 2025 to the UK. FIG that has been used to make qualifying BIR investments can be designated under the TRF without withdrawing the investment from the company. No further tax will be payable on the designated amount if there is a disposal of the investment or another potentially chargeable event. Where there is a disposal of an investment, any designated amounts are treated as disposed of before any non-designated amounts.
• Any pre-6 April 2025 unremitted foreign income and gains that have not been designated for the TRF can be sheltered under BIR up to 5 April 2028 in the normal way.
• From 6 April 2028, it won’t be possible to claim BIR on any new investments or reinvestments.

Other investments to consider

As well as business investment relief, an investment in the UK can potentially attract other tax reliefs including:

• Enterprise Investment Scheme (EIS) – income tax relief at 30% on up to £1 million investment per tax year (up to £2 million where at least £1 million is invested in ‘knowledge intensive companies’) and capital gains tax (CGT) exemption/deferral relief.
• Seed EIS – income tax relief at 50% on up to £200,000 of investment per tax year and capital gains tax exemption/reinvestment relief.
• Business Asset Disposal Relief (BADR) – 14% rate of CGT from 6 April 2025 on up to £1 million of lifetime gains on qualifying assets (the rate of CGT applying will increase from 14% to 18% for disposals made on or after 6 April 2026).
• Investors’ Relief – an extension of BADR to unlisted trading companies, which reduces the rate of CGT on disposals of qualifying shares to 14% from 6 April 2025, subject to a £1 million lifetime limit (as for BADR the rate of CGT applying will increase from 14% to 18% from 6 April 2026).
• Business Property Relief – inheritance tax exemption at either 50% or 100% which may be available after an investment is held for two years.

Conditions apply to each of these reliefs, and we recommend you take advice on the potential tax position of proposed investments in advance to ensure that relevant reliefs are identified (and the qualifying conditions met).

How we can help

Despite the upcoming changes to BIR, the relief can still be beneficial for non-doms wanting to invest in UK businesses. We can help you navigate the rules for qualifying investments and understand the implications of the abolition of the remittance basis of taxation on any existing BIR investments.

To find out more about business investment relief or associated issues, please talk to your usual Saffery contact or get in touch with Alexandra Britton-Davis.

This article is based on law and HMRC practice at 6 April 2025, and incorporates changes made by Finance Act 2025.  

Download PDF