Are you a resident non-domiciled investor?
Firstly, allow me to explain the term; a ‘resident non-domiciled investor’ is typically a foreign national who is working in the UK, and therefore paying tax in the UK. According to recent published statistics there are almost 80,000 people who fit this description and who collectively paid £7.5billion in UK tax during 2018/2019 (see note 1).
Using offshore capital, these individuals can now invest into Mercia’s Enterprise Investment Scheme (EIS) Fund which is then wrapped into a newly launched Business Investment Relief (BIR) product.
The result? Access to a leading venture capital fund, inside a tax-wrapper, inside ANOTHER tax-wrapper. The potential tax savings for what we believe is a highly innovative approach of this kind are shown in the example below.
Mercia’s early-stage venture capital fund aims to increase the value of investment by 250% (see note 2 ); the EIS adds 50% tax relief from income tax relief and loss relief; and now BIR can also save resident non-dom investors paying 45% when bringing capital into the UK.
In its own right, these tax reliefs rapidly compound to create a very tax-efficient product, and, if the venture capital investment is successful (which Mercia believes it can be), it can provide exceptional returns, with no capital gains tax payable.
To illustrate the concept, we have provided a worked example below:
- London based mid-career investment banker who relocated from Europe, earning £200,000.
- From his previous career in Europe he has £0.5m offshore which he would like to bring into the UK, but he will not do this if it is taxed at 45%.
- He has a large listed equity portfolio that creates a £20,000 CGT (in the UK) on an annual basis.
- Over a five-year period, he transfers the £0.5m (£100,000 per year) into the UK and invests into Mercia’s BIR-EIS scheme
- Mercia’s BIR scheme is structured so that capital is deployed within 45 days of the money coming into the UK
- By doing this, the investor has the following tax benefits, totaling £525,000 against a cost of £0.5m
- Avoids paying £225,000 income tax to on-shore capital
- £150,000 income tax relief
- Approx. £50,000 loss relief
- Deferral of £100,000 CGT
On the investment, when it has been fully exited, excluding the above tax reliefs, we would expect to return £1.3million.
Within a decade, using this investment schedule and reinvesting the proceeds, we would expect the investor to not pay tax (or substantially reduce the amount paid), and create a long-term, high-growth investment portfolio which is not liable for CGT.
Would you like to know more?
Why not join our BIR focused webinar on 3 March 2020 book your place by emailing enquiries@mercia.co.uk.
Alternatively, if you would like to talk to one of the Mercia team about this newly positioned EIS and BIR product, then a member of the team would be delighted to explain the potential benefits. Please get in touch with us today to start the conversation – #seriousaboutmakingyoumoney
Paul Mattick – Director – Mercia EIS Funds, Email – enquiries@mercia.co.uk
Call +44 (0) 330 223 1430
Mercia Fund Management Limited is the manager of the Mercia EIS Fund and is authorised and regulated by the FCA. Mercia Fund Management is a member of the British Venture Capital Association. Registered in England & Wales: 06973399. Registered address: Forward House, 17 High Street, Henley-In-Arden, Warwickshire B95 5AA.
Note 1 – (*https://www.theguardian.com/business/2019/aug/08/britons-non-domicile-status-drops-record-low-brexit-wealth-tax)
Note 2 – An investment return of 250% is not guaranteed. As of December 2019, EIS fund older than 5th April 2014, have a net asset value of 282% of cost (mix of realized and unrealized). Past performance does not guarantee future returns mercia2.wpengine.com/venture/mercia-eis-funds/performance-data/