In Knight and Knight v HMRC [2016] TC05544 incorrect calculation of foreign gains under the LDF led to a discovery assessment and enhanced tax penalties.

  • The three appellants bought a property in Switzerland in 1988 and sold it in 2010.
  • Having failed to declare their rental income or gains, they made disclosure to HMRC under the Liechtenstein Disclosure Facility (LDF) in 2013.
  • HMRC opened an investigation under Code of Practice 8, finding that the taxpayers had computed their capital gain in Swiss Francs and converted the result at the 2010 exchange rate.
  • HMRC objected: each item in the computation should have been converted into sterling on the date on which expended/received. 
  • A discovery assessment was raised with a penalty calculated at 20% of the potential lost CGT, the minimum percentage under Sch24 FA 2007 for a deliberate inaccuracy.

The taxpayers appealed on the basis that they had used the correct method for calculation of their gains and that their use of the LDF meant that ‘special circumstances’ existed and so their penalty should only be capped at 10%.

  • The FTT considered the Court of Appeal decision in Capcount Trading v Evans (HM Inspector of Taxes) [1993] STC 11, confirming that HMRC’s basis of currency conversion and CGT assessment was correct.
  • It also found that the FTT has no jurisdiction in respect of the workings of the LDF. Although the LDF did limit penalties to 10%, those only related to disclosures with the facility.
  • In the circumstances there was an inaccuracy and a 20% penalty was appropriate.


Cases featuring the LDF are thin on the ground although it is expected that HMRC will use COP 8 if it choses to investigate due to the sums generally involved. If you are attempting to compute your own tax liability, it is definitely worth having a second opinion from a tax adviser. The taxpayers may have saved a lot of time and energy had they done so.

Under HMRC’s new enhanced Offshore penalties regime, a taxpayer now in a similar situation will face enhanced penalties for this type of error. The LDF is now closed and taxpayers will need to use HMRC's new Worldwide Disclosure facility if they wish to declare offshore income or gains. Transfers abroad, including transfers by and into trusts are now within the new offshore penalty regime.