CH53540 - Assessing Time Limits: Extended time limits: 12 year time limit for offshore matters and offshore transfers: ‘Significantly harder to identify’
The 12 year time limit only applies for income tax, capital gains tax, and inheritance tax involving offshore matters or offshore transfers.
The extended 12 year time limit can only apply to offshore transfers, where HMRC can show that the lost tax was significantly harder to identify because of the transfer.
Cases in which the transfer makes the lost tax significantly harder to identify includes cases where because of the transfer;
- HMRC was significantly less likely to become aware of the lost tax, or
- HMRC was likely to become aware of the lost tax only at a significantly later time.
Significantly is not defined in the taxes legislation and therefore it takes its normal meaning. Significantly means noteworthy, important or consequential.
Example of an offshore transfer involving income transferred outside the UK
For many years Mrs H, a landlord resident in Germany lets properties in the UK. Mrs H’s tenants pay their rent into her UK bank account. Basic rate tax has not been deducted at source. Mrs H has instructed the UK bank that on the same day that the rent is received it should be transferred immediately into her German bank account. Mrs H pays tax on the income in Germany and doesn’t realise that UK tax is payable or that it takes precedence over the German tax in respect of the UK source rental income.
This UK rental income does not stay in Mrs H’s UK bank account long enough to earn interest or increase the balance of the account, so HMRC does not receive UK bank interest information each year. Furthermore, HMRC does not receive any information from Mrs H’s German bank because it is offshore, nor does HMRC receive any Common Reporting Standard data because Mrs H is resident in Germany. This makes it significantly harder to detect Mrs H’s non-compliance compared to a similar situation with a UK resident taxpayer with a UK bank account.
HMRC obtains third party information about landlords letting flats in London and opens an enquiry into Mrs H. As the money from the rental properties was transferred outside of the UK before the relevant date the 12 year time limit for offshore transfers applies. HMRC can, therefore, make assessments for the preceding 12 years.