On 8 September 2017 the UK government published the second Finance Bill of 2017. This second Finance Bill was necessary because not all the legislative changes announced in the autumn statement 2016 and budget proposals for 2017 could be included in the first Finance Bill in the spring of 2017, owing to the general election held in the summer. Some of the provisions of the second Finance Bill will apply retrospectively from April 2017.

The measures in the Bill include the following:

Deemed domicile rule

A person domiciled outside the UK will be regarded as having a UK domicile in either of two circumstances. The first is that the individual was born in the UK with a UK domicile of origin and is resident in the UK for tax purposes in the relevant tax year. The second is that the individual has been resident in the UK in at least 15 of the preceding 20 years. This deemed domicile rule will apply in relation to income tax and capital gains tax legislation in the relevant year.

Penalties for enablers of defeated tax avoidance

A new penalty is to be introduced for any person enabling the use of abusive tax avoidance arrangements that are later defeated in the Tribunal or Court. The penalty is based on the amount of consideration receivable by the enabler for their role in relation to the tax avoidance arrangements. The penalty will apply to steps taken by an enabler in relation to arrangements entered into on or after the date of Royal Assent to the Act.

Inaccuracies relating to use of avoidance schemes

Persons submitting documents containing inaccuracies relating to the use of tax avoidance schemes will not be able to avoid the penalty for lack of reasonable care if they took advice from persons not qualified to give the advice or who were themselves connected to the avoidance. This measure will apply from the date the Act is passed and will relate to inaccuracies in documents sent to HMRC from that date in relation to tax periods beginning on or after 6 April 2017 and ending on or after the date the Act is passed.

Deduction for corporate interest expense

With effect from 1 April 2017 the deduction for corporate interest will be restricted by reference to a fixed ratio of 30% of tax-EBITDA. There will also be a debt cap to limit the net interest deduction to a measure of the worldwide group’s net external interest or economically similar expenses. The provisions do not apply to groups with less than GBP 2 million of net interest expense in a year.

Substantial shareholding exemption

From 1 April 2017 the condition that the investing company must be a trading company or part of a trading group is removed. The exemption will apply where the investment has been held for a continuous period of twelve months in the preceding six years (previously twelve months in the previous two years). The condition that the company in which the shares are sold should continue to be a qualifying company immediately after the sale is withdrawn except in the case of a sale to a connected party.

Patent box – cost sharing arrangements

For accounting periods beginning on or after 1 April 2017 the patent box rules are amended so that where research is carried out by two or more companies in collaboration under a cost sharing arrangement the companies are treated in the same way for tax purposes as they would be if the research and development had been arranged differently.

Social Investment Tax Relief

Changes to Social Investment Tax Relief from 1 April 2017 include an increase in the amounts that newer social enterprises may raise from individual investors under the scheme; and provisions to better target the scheme on higher risk activities and to deter abuse.

Venture Capital Trusts

The Venture Capital Trust (VCT) rules are amended to allow a new parent company that has acquired an old company through a certain type of share for share exchange to receiver follow-on funding from a VCT on the basis of the funding history of the old company. The provision applies to investments made from 6 April 2017.