HM Revenue & Customs is consulting with accountants and lawyers on ways to make business investment relief more attractive.
Marilyn McKeever, associate director of law firm Berwin Leighton Paisner, revealed HMRC was surprised by how little investors were making use of business investment relief.
Business investment relief (BIR) was introduced with effect from 6 April 2012 in an attempt to encourage UK resident but non-domiciled individuals to invest in the UK.
If the relief applies, the taxpayer can use his non-UK income or gains to make a UK investment without incurring the UK tax charge which would otherwise arise on the remittance of the non-UK income or gains.
Speaking at FTAdviser's Tax Efficient Investing conference at the Financial Times offices in London, Ms McKeever said HMRC was seeking advice on how to make this type of tax relief more attractive to investors to boost investment in UK companies.
While the government has already made some changes, she said, these "cannot quite be described as incentives" but recent alterations did amount to the removal of disincentives.
In her keynote speech this morning (25 January), Ms McKeever said: "The government has taken that on board and they are looking to simplify and improve business investment relief because they have been surprised at how little it is used.
"They have relaxed some of the worst of the anti-avoidance provisions. One of the big changes is you can invest in existing shares and I think that is a big bonus.
"The government is open to ideas about how this relief can be made more attractive so watch this space."
Jeremy Mindell, director of taxation specialists Primondell Ltd, said he was also aware that the government was looking "carefully" at business investment relief.
Mr Mindell said the government is looking to "expand" business investment relief over the next few years.
Mr Mindell said this was great news for those who have been resident in the UK for a few years and find themselves now domiciled here under the new non-domiciled taxation rules set to be introduced in April 2017.
According to HMRC, business investment relief has been used by between 200 and 400 individuals every year since launch.
HM Revenue & Customs and HM Treasury were asked to comment on whether it would shake-up the tax relief for non-domiciled individuals but failed to do so.
In 2015 then-chancellor George Osborne unveiled plans to scrap permanent non-domicile status.
From 6 April 2017, anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes.
Mr Osborne also made it no longer possible for people born in the country to UK domiciled parents to claim non-domicile status if they leave but then return to this country and take up residency in the UK.
damian.fantato@ft.com
