Although HM Revenue & Customs (HMRC) claims the measure was put in place to investigate the wealthy, in a letter to the chancellor of the exchequer, Phillip Hammond, the chairman of the House of Lords’ Finance Bill Sub-Committee of the Economic Affairs Committee, Lord Forsyth, raised great concern over the clause.
In the letter, he claimed, the new powers would not only crack down on the wealthy but would impact greatly on elderly people and those on a moderate income.
Current UK legislation allows HMRC to review offshore tax matters going back up to four years.
“There was deep and consistent opposition to this measure from witnesses to our inquiry, primarily because the impact would extend beyond the high net worth individuals at whom one might expect it was targeted,” wrote Lord Forsyth.
“The Low Incomes Tax Reform Group were concerned that many individuals affected by clauses 33 and 34 would be elderly people on low incomes.
“They, together with several other witnesses, suggested the measure be withdrawn, or at least replaced by something more proportionate and targeted.”
The new powers underwent consultationd in February this year, following their first proposal in November 2017.
Under the new powers the retrospective time for investigations would be extended to 12 years, and HMRC would not need to establish non-compliance.
According to HMRC, the extension is due to the more complex nature of offshore investigations, which can take longer to conduct, especially if they involve structures to reduce taxable income, gains or chargeable transfers.
However, under the new bill, holiday homes, shares in overseas listed companies, overseas bank accounts or small pensions could fall under the HMRC investigation radar.
Lord Forsyth’s letter concluded: “On the whole, this measure is unnecessary and undesirable. We recommend that it is withdrawn from the Bill. The government should start a fresh dialogue with representatives of tax professionals to consider how offshore tax matters can be managed more effectively.”
Gordon Andrews, financial planning expert at Quilter, said: “These extended time limits apply unless international agreements mean HMRC already has the information needed to assess the tax due.
“It will be interesting to see if the chancellor stands firm on these measures when faced by opposition from the Lords.”
“The concern is that it will impact a number of very ordinary people who believe they have acted legitimately when navigating complex rules quite a number of years ago and who have used offshore investments for good reason, such as a period working abroad.
“Some of these people will be elderly and vulnerable, and could find an intimidating letter from the tax authorities deeply concerning.”