Despite increasing scrutiny and regulatory oversight, the UK remains a welcoming and popular destination for foreign direct investment (FDI). Here, we provide a brief overview of the UK’s stance on foreign investment, and how any disputes related to such agreements are typically resolved. If you would like further information to the regulation of inbound foreign investment in the United Kingdom, you can access our recent concise Q&A guide here or the full chapter here (subscription required).
What is the UK’s approach to foreign investment?
Despite a continuing decline in the past couple of years in the total number of recorded FDI projects – from 1,782 in 2018/19 to 1,375 in 2024/25, according to the UN Trade & Development’s (UNCTAD) 2025 World Investment Report – the UK continues to attract significant FDI, ranking amongst the top three global destinations for investment in greenfield projects over the past two decades and the third-largest recipient of international project finance deals in FY2024/25.
Initiatives such as novel tax relief schemes, the extension of effective periods for investment zones and freeport tax reliefs, and increased public funding for investment zones are also helping the UK to attract FDI across a wide range of domestic industries. In software and computer services, for example, the UK attracted more FDI than any other European country, with the Department of Business and Trade recording 257 inward investment projects for this sector in 2024/25.
On 24 November 2024, the UK Government also published its green paper titled ‘Invest 2035: The UK’s Modern Industrial Strategy’, which set out a ten-year plan for creating long-term certainty and unlocking investment in high-growth sectors and regions. Being more strategic and better organised when attracting FDI is one of the targets highlighted by this strategy.
Nevertheless, recent developments have seen the UK’s stance change to incorporate greater emphasis on scrutiny and regulatory oversight.
The National Security and Investment Act 2021 (‘the NSI Act’), for example, has substantially expanded the UK Government’s ability to review and, if necessary, block foreign investments that may pose a threat to national security.
How are investment agreements managed in the UK?
UK law does not have a special regime governing investment contracts with the state, state-owned entities, or private parties. Instead, the UK applies general principles and broadly applicable statutes of law to such investments, such as laws concerning contracts and competition.
The UK has many bilateral investment treaties (BITs) and international investment treaties (IIAs) in effect. At the time of writing, there are 81 BITs involving the UK in force, while 11 have been signed but not ratified.
Some of the UK IIAs also extend to British Overseas Territories and Crown Dependencies, neither of which have the authority to enter into international treaties. If this is the case, they will be covered by a territorial application clause included in the IIA.
The UK has also executed 31 other types of treaties containing relevant investment provisions, most of which are Free Trade Agreements (FTA).
Which domestic laws apply to foreign investors and investments?
Generally, foreign investors are subject to the same legal rights and obligations as domestic UK investors. Foreign investors can own 100 per cent of a domestic company, as well as hold the same class of stock as domestic shareholders. They can also acquire shares in a public company without prior approval.
That being said, to invest in the UK, investors must ensure their investment entity is properly registered with Companies House via a unique business name, a memorandum, articles of association, and a completed NI01 form. Some sectors, such as electricity, gas, and financial services, will also require approval from their relevant regulatory body.
This process is particularly important to follow since the NSI Act was enforced in 2022. Applying equally to domestic and foreign investors, the NSI Act allows the UK Government to intervene in, and conduct a national security assessment of, any transactions that it reasonably believes could give rise to a potential risk to national security.
Acquisitions resulting in a change of control in the target entity, will fall within the scope of the NSI Act (see NSI Act, Chapter 2). Moreover, the NSI Act provides for a mandatory pre-notification system for any proposed acquisition of shares or voting rights in 17 critical sectors, including artificial intelligence and defence (NSI Act, Section 14). Notifications must be made to the Investment Security Unit (“ISU”) who will then approve, investigate or reject the proposed transaction. Another novelty of the NSI Act is the extensive call-in powers, enabling the Government to intervene in any qualifying transaction in any sector with no materiality thresholds, if there is a suspicion that the transaction might impact on national security interests.
It is, however, important to note that the increased regulatory scrutiny introduced by the NSI Act did not have a noticeable impact and the Government cleared 842 deals and conditionally cleared 5 deals in 2023/24. No acquisitions were prohibited. Data from FY24/25 have not yet been released.
Following the UK General Election in July 2024, there was a question about whether there would be a material change in application of the NSI Act, as “national security” was deliberately left undefined. The Investment Security Unit (“ISU”), however, has indicated that there has been no change, and that businesses should expect the same.
How does the UK manage investment treaty disputes?
When a dispute with a foreign investor occurs, the Government Legal Department (GLD) must be served with process, with the Government of the United Kingdom of Great Britain and Northern Ireland (and possibly also the UK Prime Minister or Attorney General) named as respondent.
Under Article 8 of the UK’s Model BIT, which was published in 2008, a dispute between an investor and a host state can then be submitted to:
- The International Centre for Settlement of Investment Disputes (ICSID);
- The Court of Arbitration of the International Chamber of Commerce (ICC); or
- An international arbitrator or ad hoc arbitration tribunal that is either appointed by a special agreement or established under UNCITRAL Arbitration Rules.
The UK is a party to both the ICSID Convention and the New York Convention.
At the time of writing, there have only been two publicly available cases initiated by a foreign investor against the UK. The first, Ashok Sancheti v United Kingdom, is an ad-hoc arbitration governed by the UNCITRAL Arbitration Rules initiated under the UK – India BIT. The second, Woodhouse Investment Pte Ltd and West Cumbria Mining (Holdings) Limited v United Kingdom, is registered before the ICSID on 8 August 2025 and brought under the 1975 Singapore-UK BIT.
What is the UK’s approach to confidentiality in investment treaty arbitrations?
Due to the lack of disputes between foreign investors and the UK, it is difficult to determine what the standard course of practice is for investment treaty arbitrations involving the UK.
In Ashok Sancheti v United Kingdom claim, for example, the UK refused to publicise the Notice of Arbitration to which it was a Respondent. This is likely to change, however, if the UK ratifies the UN Convention on Transparency in Treaty-based Investor-State Arbitration (‘the Mauritius Convention’), to which it is a signatory. If this is done, all information pertaining to UK BITs will be public, unless subject to exceptions.
How does the UK enforce arbitral awards?
The UK has signed and ratified the Recognition and Enforcement of Foreign Arbitral Awards (‘the New York Convention’), which requires it to recognise and enforce arbitral awards made in other contracting states.
This ratification comes with a reciprocity reservation, however, which limits the UK’s recognition and enforcement of arbitral awards to those issued in the territory of a state party to the New York Convention.
Section 101(3) of the UK Arbitration Act 1996, which implements Article V of the New York Convention, provides for several grounds of refusal, including:
- The arbitration agreement is invalid because it is contrary to the applicable law of the UK or the state in which it was issued;
- The Respondent was not given proper notice of the arbitrator’s appointment or the arbitration proceedings;
- The award addressed issues beyond the scope of the arbitration agreement;
- The arbitral tribunal’s composition or procedure did not comply with the arbitration agreement or applicable law; and
- The award has been set aside or suspended by a competent authority of the state in which it was issued.
Awards issued under the ICSID Convention will be enforced pursuant to Section 1 of the Arbitration (International Investment Disputes) Act 1966. ICSID awards can also be stayed in certain cases, the provisions for which are under Article 12.21 of the Civil Procedure Rules of England & Wales.
Enforcement of any award against the UK in domestic courts (whether in England & Wales, Scotland or Northern Ireland) will also likely raise questions of state immunity.
What next for the UK and foreign investment?
‘New generation’ BITs include several noteworthy features, particularly for investors. These include comprehensive and express limitations on state obligations towards investors, including the Fair and Equitable Treatment (FET) standard and the obligation to provide full protection and security (FPS) for investments. These limitations reduce the scope of the host state’s obligations and provide stronger grounds on which to defend a claim made by a foreign investor.
Various bodies, including the UK Parliament’s International Trade Committee, have also called for new BITs to contain express permission for a state to make a counterclaim.
Investors investing in the UK should also be aware that, as of 27 April 2025, the UK’s withdrawal from the Energy Charter Treaty (ECT) has become effective, and no new investments will be able to benefit from its provisions. Under the ECT’s ‘sunset clause’, however, there is a period of 20 years during which the treaty’s protections will continue to apply to investments made prior to 27 April 2025.
This year also saw significant changes to the UK’s approach to arbitration with the introduction of the Arbitration Act 2025, which came into force on 1 August 2025. Section 6A of the Act establishes that, in the absence of an express choice of law in the arbitration agreement, the law governing the agreement shall be the law of the seat of arbitration. Section 6A(3), however, provides a specific exception, with the default rule not applying when the arbitration agreement arises under an international treaty.
These changes, alongside greater scrutiny of business ownership and arbitral award enforcement, should give foreign investors pause to ensure they fully understand the framework behind foreign direct investment in the UK. In so doing, they can both avoid potential disputes and reap the benefits of the UK’s growing capabilities in sectors such as digital technology and life sciences.