The initiative, which increased its lower level investment from £1m to £2m on 6 November, aims to encourage high-net-worth individuals to invest in British companies in exchange for the right to apply for citizenship after five years.
However, wealth management firm London & Capital said the new rules mean investors might “buy and hold”, rather than trade in more risky assets, which would be preferable for the UK economy, as they do not want to risk their portfolio dropping below the £2m threshold.
If a portfolio does fall below the £2m threshold, the client is not required to top up the initial investment unless they then decide to sell an asset. In that case the investment would need to be topped up to the original £2m.
Mark Estcourt, who is head of international wealth and immigration at London & Capital, said he expects many wealth managers will be cautious about the advice they offer these high-net-worth foreign clients because “it is easier for them to justify and show on paperwork”.
The worry is that the investment level may dip below the £2m threshold during the qualifying investment period.
“Companies are more worried about getting it wrong,” he said.
“You have to get it right or it’s catastrophic for the clients. It can even be dangerous for some individuals to return to their country of origin, so you can’t put them in that position.”
The lowest level of investment had been static since the first visa was granted 20 years ago, and Estcourt said the Migration Advisory Committee decided it was time for a change.
“The committee felt it was selling investor visas too cheaply,” he said.
He said the change to the top-up rules was “not what the market was expecting”, as it restricted clients’ ability to alter their investments to manage the risks they have taken investing in UK qualifying assets.
“You would expect the top-up rule to cover investing £2m to ensure it is ring-fenced so money doesn’t leave the portfolio, save for fees.
“Instead, the Home Office has written rule 65c in such a way that investors might buy and hold the investments without trading.
“This aversion to risk pushes investment into the lower volatility investments, such as government gilts while adopting a passive strategy.”
