As of the start of the new tax year (from April 2019), HM Revenue & Customs (HMRC) now has 12 years to investigate taxpayers they believe have made errors over their foreign income, tripling the current time limit.
This extended timeframe was introduced in the Government’s Finance Bill 2018-19, which was given Royal Assent and means that the time limit to investigate errors has been extended from four to 12 years. However, the time limit to investigate taxpayers who are suspected of deliberately evading tax remains unchanged at 20 years.
The Finance Bill states that income tax or capital gains that involve an offshore matter could include income from a source outside the UK, assets situated or held outside the UK, activities carried out wholly or mainly outside the UK or anything that has an effect of being income, assets or activities.
Meanwhile, lost income or capital gains tax (CGT) that involves an offshore transfer include assets received in a territory outside the UK or assets that were transferred outside the UK before the individual’s tax return was submitted.
According to a spokesperson for HMRC, the new timeframe will stop the risk of some “very complex offshore cases falling outside of the time limits for investigation and assessment.”
However, many tax groups and other bodies are not in favour of the changes and in a recent report, the House of Lords Economic Affairs Committee described the extension as ‘unreasonably onerous and disproportionate to the risk’.
This is because the people most likely to be caught out are elderly people with small incomes from overseas pensions, anyone receiving interest from a foreign bank account and those who own holiday or retirement properties abroad rather than ‘globe-trotting high flyers’.