On 6 July 2018, changes were introduced to the UK Immigration Rules governing the Tier 1 (Investor) category. These affect the way that accrued interest and declared dividends must be treated within a portfolio of investments created to satisfy the Tier 1 (Investor) requirements. They also introduce new requirements for the documentation which must be provided to support applications for an extension of stay and indefinite leave to remain (ILR), also known as permanent residence or settlement, under the Tier 1 (Investor) category.

Previously, the Immigration Rules stated that a Tier 1 (Investor) migrant may withdraw all interest and dividend payments generated by the Qualifying Investments (UK Government bonds and share capital or loan capital, including corporate bonds, in active and trading UK registered companies) in a portfolio established to satisfy the Tier 1 (Investor) investment requirements.

This rule has now been amended to state that Tier 1 (Investor) migrants may only withdraw interest accrued and dividends declared after the date on which the migrant purchased the relevant Qualifying Investment. This means that any interest accrued by the time a bond is bought, which would be included in the purchase price, and any dividend which has been declared, but not yet been paid at the time a share is purchased, must be invested in Qualifying Investments once it is paid.

This will make managing Tier 1 (Investor) portfolios much more complex since many wealth managers automatically transfer income payments to a separate income and fees account to cover the fees and costs associated with operating the portfolio. In the case of bonds, this would mean that when interest is paid on a bond which includes interest accrued at the time of purchase, the wealth manager will have to ensure that a sum equivalent to the amount of accrued interest is transferred back to the portfolio and reinvested.

Similarly, in relation to dividends, wealth managers will have to ensure that if a share is bought between the dividend declaration and record dates, the corresponding dividend payment is moved back into the portfolio and reinvested.

This obviously increases the chances of mistakes being made. In order to minimise this, wealth managers are likely to advise potential Tier 1 (Investor) migrants to simply invest in long dated UK Government bonds and for all income generated by the portfolio to be immediately re-invested in Qualifying Investments. This goes against one of the recommendations of the Migration Advisory Committee in its review which led to the last major change to the Tier 1 (Investor) requirements that Tier 1 (Investor) migrants should be able to act in the same way as investors more generally, making investment decisions based on their appetite for risk and seeking to maximise the return on their investment.

In relation to the documentation which must be submitted in support of a Tier 1 (Investor) extension / ILR application, Tier 1 (Investor) migrants must submit portfolio reports signed off by a financial institution regulated by the FCA, evidencing that the migrant has maintained a portfolio of Qualifying Investments in line with the Tier 1 (Investor) requirements. These reports must normally be accompanied by a letter containing certain additional information not shown in the portfolio reports. This letter must now also confirm that the funds have only been invested in Qualifying Investments and that no loan has been secured against those funds.

In the case of wealth managers operating discretionary Tier 1 (Investor) portfolios, it is likely that they will be able to make this declaration as the requirement to only invest in Qualifying Investments would have formed part of the mandate agreed when the portfolio was initially established.

However, wealth managers operating a portfolio on an advisory or execution-only basis may not be prepared to give this declaration, as it is ultimately up to the migrant which investments they buy. In addition, the mandates for these offerings often state that the wealth manager will not guarantee that any investments bought meet the Tier 1 (Investor) requirements.

Furthermore, in relation to confirming that the portfolio is unencumbered and has no loans secured against it, it is possible, however unlikely, that the portfolio could be used for security for a loan without the wealth manager’s knowledge. Consequently, again, a wealth manager may not feel in a position to make this declaration.

It is therefore clear that the new rules around accrued interest and declared dividends will increase the amount of manual checking and adjustments that wealth managers overseeing Tier 1 (Investor) portfolios will be required to make to ensure the investments remain compliant. This additional complexity will inevitably lead to mistakes being made in the management of these portfolios and it is to be hoped that, when the Home Office consider extension / ILR applications where errors have been made, they are prepared to exercise their discretion and approve applications where the breach of the investment requirements is the result of a genuine mistake.

In relation to wealth managers operating Tier 1 (Investor) portfolios being required to state that the investments have been maintained in compliance with the relevant requirements, it is likely that some Tier 1 (Investor) migrants will receive push back from their wealth manager's legal / compliance team. This is because they are likely to take the view that it is not the wealth manager’s place to confirm that the portfolio has been maintained in line with the Immigration Rules and that this confirmation should, instead, come from a solicitor or immigration adviser qualified to provide this. It will therefore be interesting to see what wording the Home Office accept on the letters from wealth managers as discharging this requirement.