Reasonable knowledge

Conditions to issue a discovery assessment

The taxpayer took part in the Castle Trust scheme the aim of which was to create allowable losses. He disclosed chargeable gains of £1.8m in his 1998/99 tax return which he submitted in February 2003 but claimed they should be offset by capital losses of more than £2m. He stated that the losses were attributable to a ‘beneficial interest in the Castle Trust’.

HMRC investigated the scheme from 1999 to 2007. In December 2004 it issued a discovery assessment to the taxpayer challenging the capital loss claim.

The First-tier and Upper Tribunals upheld the assessment. The taxpayer appealed.

The issue before the Court of Appeal was whether at the time the enquiry window closed the relevant HMRC officer ‘could not have been reasonably expected on the basis of the information made available’ to be aware of the...