UNITED KINGDOM: Migration Advisory Committee Releases Report on Tier 1 (Investor) Category
On February 25, 2014, the Migration Advisory Committee (MAC) published a much-anticipated report on the current investment thresholds and economic benefits of the Tier 1 (Investor) route. Commissioned by former Immigration Minister Mark Harper, the report synthesizes a large volume of data and offers a number of significant recommendations.
The MAC, a non-departmental public body sponsored by UK Visas and Immigration, is made up of experts in the fields of economics and migration and advises on questions of immigration posed by the government.
Tier 1 (Investor) Background
The predecessor to the present-day Tier 1 (Investor) category was launched in 1994 and required, as it does today, a minimum investment of £1 million. With the creation of the Points-Based System (PBS) in 2008, the government introduced the Tier 1 (Investor) route. Since then, the category has remained in large part unchanged except for a few amendments introduced in 2011, which accelerated settlement for investors of larger sums and reduced residency requirements.
At present, applicants must possess either £1 million, comprising the applicant's own money, or £2 million in personal assets in addition to at least £1 million loaned to the applicant by a UK-regulated financial institution. In both cases, funds must be under the applicant's control, held in a regulated financial institution, and disposable in the UK.
Individuals who meet the route's requirements may be granted leave to enter the UK for up to three years. After that time, they may apply to extend their stay. To qualify for an extension, at least £750,000 of the funds must have been invested within a prescribed time frame in UK government bonds, share capital, or loan capital in active and trading UK-registered companies. The balance of the funds must have been used to either purchase assets or maintain a deposit in a UK-regulated financial institution.
After five years, investors may be eligible for settlement (also referred to as indefinite leave to remain) in the UK. However, individuals who meet the higher premium investment thresholds of £5 million or £10 million may benefit from accelerated settlement of three years and two years, respectively. After obtaining indefinite leave to remain, individuals who have invested £10 million or more may apply for citizenship after a total of five years, while all other investors are eligible after six years.
At the outset, the MAC noted its "healthy skepticism" about the economic benefits of the Tier 1 (Investor) route. The report asserted that many of the gains typically associated with the category might not be as self-evident as some would claim. Nevertheless, the MAC did acknowledge a modicum of economic benefit, albeit difficult to quantify, both to the British public as well as investors.
Based on these findings, as well as input from individual and organizational stakeholders, the MAC recommended:
1. raising the minimum threshold of investment from £1 million to £2 million;
2. relaxing present restrictions on permissible investment instruments and allowing greater flexibility and variety in investment alternatives. Potential options included:
- relaxing reporting requirements to make investment in private companies more feasible;
- permitting investment in extant investment opportunities such as venture capital schemes, and angel investments;
- creating new investment instruments such as infrastructure bonds and property development;
- combining investments such as pooled investments and a UK government business fund; and
- offering philanthropic contributions such as education, arts, and medical research funds.
3. removing the "topping up" rule for investments, where investors must reinvest to maintain a prescribed balance. This would remove the incentive to purchase only low-risk UK government bonds, eliminate the need for quarterly valuations, and allow for more high-risk investments;
4. removing the ability to meet investment requirements by way of loans from UK financial institutions;
5. reducing the time individuals opting for the premium routes must be resident in the UK from 185 days to 90 days annually; and
6. capping the annual number of available premium investment visas at approximately 100 and offering them in a sealed bid auction. A reserve price would be set at £2.5 million with £2 million being investment and the balance being donated to the UK government for a good-causes fund.
In addition to these recommendations, the MAC noted several options that were outside of its responsibility, but that they believed would increase popularity of the Tier 1 (Investor) route and benefit the UK economy:
1. reducing the proportion of investment that may be made in UK government bonds, or prohibit investment in them altogether;
2. bringing dependent settlement periods in line with those for main applicants; and
3. accelerating citizenship for premium investors.
Pros and Cons
A number of the recommendations outlined in the MAC report represent constructive, reasonable steps that, if adopted, will benefit the UK economy and investors alike. Significantly broadening the scope of investment options, relaxing certain reporting obligations, and reducing residency requirements are all positive moves in the right direction.
Moreover, while falling short of actual recommendations, the MAC's suggestions to bring dependents' settlements in line with those of the main applicants and accelerating citizenship for top investors are sound proposals that the UK government should adopt.
On the other hand, some of the report's recommendations could have negative effects. For example, raising the investment threshold from £1 million to £2 million could drive off a portion of investors who may be enticed by less costly schemes offered elsewhere. The UK's investor route is already relatively expensive compared to those of other nations. While investors of the caliber attracted to the Tier 1 (Investor) route are concerned with more than just cost alone (e.g., stability of government, rule of law, and access to education), doubling the price of entry in one fell swoop will almost certainly act to drive down applicant numbers. And although we must avoid engaging in a race to the bottom with other nations, it is equally unwise to move in the other direction and price investor routes out of play in an increasingly competitive market.
Additionally, artificially capping the number of premium investment migrants at around 100 does not make for sound policy. The government has actively pursued the reduction of annual net migration numbers from the hundreds of thousands to the tens of thousands by 2015. But with successful Tier 1 (Investor) applications representing less than one percent of successful applications across all routes, such a measure, while perhaps appealing politically, will ultimately be meaningless numerically. Rather, the government should be actively drawing on its resources to attract as many new premium investors as possible, while simultaneously converting past applicants into higher levels of investment.
It should be noted that the MAC does not set policy and the recommendations in its report are not binding.
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