In Simon Miesegaes v HMRC [2016] TC 05129 the First Tier Tribunal (FTT) found that disclosure in a trust tax return wasn't sufficient to prevent a discovery assessment for the life tenant.

  • The taxpayer is a UK resident who in 2006/07 established a trust with himself as life tenant.
  • The trustee was a Guernsey resident company which, in its capacity as trustee, entered into a partnership trading in UK property.
  • In his 2006/07 tax return the taxpayer wrongly claimed his trust income was exempt under the UK-Guernsey tax treaty with minimal disclosure.
  • The trust tax return contained a large white space disclosure on the activities of the trust.
  • In 2011 HMRC raised a discovery assessment in respect of the untaxed trust income.
The taxpayer accepted that he was not entitled to double tax relief as the trust was involved in a partnership.  However he argued that the assessment was not valid as:
  • No discovery could have been made due to the disclosure included in the trust tax return.
  • Failing that, the information in the taxpayer's own return was sufficient.
  • HMRC did not act on any discovery promptly enough.

The FTT rejected all three arguments:

  • The information in the trust return was not information which had been 'made available' to HMRC for discovery assessment purposes.
  • If Parliament had intended trust returns to be considered to be 'made available' they would have specifically included them in the list given in s29(6).
  • The hypothetical officer could not have been made aware of the insufficiency based on the taxpayer's return alone.  In particular, this did not disclose that the trust traded in partnership.
  • It is irrelevant how long it takes to act on a discovery provided an assessment is made by the end of the statutory deadline.

The taxpayer's appeal was therefore dismissed


The FTT's decision goes against that in Charlton, Corfield & another v HMRC [2012] UKFTT 770 (TCC)  on a couple of points.  In that case, the Upper Tribunal found that including a Disclosure Of Tax Avoidance Scheme (DOTAS) reference number on a return meant no discovery assessment could be made.

In their decision the FTT drew the distinction between a DOTAS reference application having to disclose full details of a scheme, and the fact that any particular tax return may or may not explain an insufficiency.

The FTT also chose not to follow comments from Charlton on the importance of the 'freshness' of discovery assessments, a point which was also considered in the recent UT case of Pattullo v HMRC [2016] UKUT 0270.  It will be interesting to see whether the taxpayer appeals on these grounds.


Useful guides on this topic

How to appeal a decision of HMRC
Key steps in appealing a decision of HMRC.

How to appeal a tax penalty
Essential reading in cases were there are penalties too

Discovery assessment and time limits
How far HMRC can go back, what conditions must be met for a valid discovery

Penalties: Error in a return or document
How work out penalties for different forms of inaccuracies

DOTAS: Disclosure of Tax Avoidance Schemes
Rules for declaring use of tax schemes

Case reference: Simon Miesegaes v HMRC [2016] TC 05129