The application submitted on 22 November 2022 by Jordan Jackson, officer of HM Revenue and Customs, was considered in hearing held in private of which notice was only given to, and which was only attended by, representatives of HM Revenue and Customs, and which took place via a video connection with the Tribunal on 6 December 2022. In addition to Mr Jackson's oral submissions, HMRC submitted an electronic bundle of 373 pages.

HMRC have applied for an information notice ("the third-party notice") to be issued under paragraph 2 of Schedule 36, Finance Act 2008 ("Schedule 36") to the Third Party, which is a firm of solicitors in Northern Ireland.

Applications under Schedule 36 are normally subject to a direction under Rule 32(2) of the Tribunal's procedure rules, and are held in private. Decisions made at such hearings are not usually published. Such a direction was made in the case of this application. However, as the information notice is to be given to a firm of solicitors, I considered that it is appropriate for me to provide a full decision giving my reasons for approving the notice, and it is in the public interest for my decision (appropriately anonymised and redacted) to be published. (Footnote: ¹ )

Paragraph 3 of Schedule 36 provides as follows:

Schedule 36 includes provisions restricting the scope of information notices. Relevant to this application are the restrictions in paragraphs 18 and 23:

The regulations to which paragraph 23(3) refers are the Information Notice: Resolution of Disputes as to Privileged Communications Regulations (SI 2009/1916) ("the Information Notice Regulations").

References in this decision to "paragraphs" are (unless the context otherwise requires) to paragraphs of Schedule 36.

On the basis of the evidence before me, I find the background facts relevant to the approval of the third-party notice to be as follows.

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In accordance with paragraph 3(3)(c), on 17 August 2022 a draft of the schedule to the proposed third-party notice (setting out the information and documents being sought) was sent to the Third Party, inviting them to make representations by 21 September 2022. The information notice schedule seeks the following information

In the case of each notice, "document" has been defined to include electronic equivalents. The covering letter made it clear that the notice would not extend to documents for which a claim to legal professional privilege could be maintained.

In accordance with paragraph 3(3)(e) the taxpayer and his representative were on 17 August 2022 sent details of the information being sought from the Third Party, and the reasons for the requests, and were invited to make representations by 21 September 2022.

For completeness, I note that HMRC have also applied for the approval of third-party information notices to be issued to other third parties which are the subject of separate decision notices.

On 22 November 2022, Mr Jackson applied to the Tribunal for the approval of the third-party notice. The application was made with the agreement of an authorised officer of HMRC for the purposes of paragraph 3(3)(a).

The Third Party wrote to HMRC on 5 September 2022 stating that:

The letter concluded by asking HMRC to withdraw their request for information and documents.

As the Third Party did not represent the taxpayer in relation to the purchase of Property 1 and was therefore not in possession of any information relating to that property, at the hearing HMRC withdrew Property 1 from the scope of the information notice sought to be issued to the Third Party.

The taxpayer's representative telephoned Mr Jackson on 17 and 25 August 2022. Mr Jackson made notes of both of these calls which were provided to me. The representative wrote to HMRC on 8 September 2022, and the substance of the telephone conversations were repeated in the letter. A copy of the letter was provided to me. As the letter is lengthy, I do not propose to set it out in full in this decision, but I summarise the points raised in the letter as follows:

HMRC replied on 30 September 2022 in order to address the complaints raised by the representative. As these complaints are outside the scope of the Tribunal's role, I have not set out HMRC's reply.

HMRC extended the time for the taxpayer to provide representations to 12 October 2022. On 6 October 2022, the representative emailed HMRC with their representations:

HMRC suspect that the taxpayer has not fully disclosed his worldwide assets, and in particular assets held through the three offshore trusts. HMRC suspect that the taxpayer may not have declared all of his income and gains – particularly those arising through offshore structures.

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Mr Jackson submits that requests made to the taxpayer have failed to obtain information about the assets held offshore by or through the three trusts, and that the taxpayer has not always been fully transparent and open about the assets in which he has an economic interest.

Mr Jackson submits that HMRC have probably reached the limit of the information they have been able to obtain through international requests.

Mr Jackson submits that the taxpayer is likely to have given disclosure of his wealth to lenders and to the Third Party (the subject of this notice) in connection with the making of loans, the giving of guarantees, and the purchase and sale of properties – because of their requirements to undertake due diligence on their customers and clients for AML purposes, and the fact that lenders will only lend in line with the ability of the borrower or guarantor to service the loan.

HMRC seek information from the Third Party for the following reasons:

As regards the representations made by the Third Party, Mr Jackson made the following submissions:

As regards the representations made by the taxpayer's representative, Mr Jackson made the following submissions:

Paragraph 3(3)(b) provides that I may only approve the giving of the third-party notice if I am satisfied that the officer giving the notice (Mr Jackson) is justified in so doing.

In order to satisfy me that HMRC are justified in giving the notice, HMRC must satisfy me that the information that they are seeking through the issue of the third-party notice is reasonably required for the purpose of checking the taxpayer's tax position. In addition, I would not approve the issue of a third-party notice if I was not satisfied that it was a reasonable and proportionate use of HMRC's powers.

On the basis of the evidence before me, I find that HMRC have reasonable grounds to suspect that the taxpayer may be liable to UK tax on income and gains which he has not declared to HMRC. It is not in dispute that the taxpayer was the settlor of three offshore trusts. It is unclear whether those trusts remain in existence, and the extent to which the taxpayer is a beneficiary of those trusts. The taxpayer has an economic interest in BVICo through the insurance wrapper arrangement. It remains unclear whether the taxpayer has received benefits from those arrangements. I find that HMRC have reasonable grounds to suspect that the taxpayer may have a liability to UK taxes in respect of the income and gains arising through those trust and insurance arrangements (including through subsidiary companies). I find also that the taxpayer may have liabilities to IHT as settlor of the three trusts.

I find that the taxpayer has not provided information and documents reasonably requested by HMRC for the purposes of checking his tax position. I therefore find that it is reasonable and proportionate for HMRC to seek information from third parties, and the Third Party in particular. But I make no finding as to whether the taxpayer's failure to provide information was done deliberately or with the intent of frustrating HMRC's enquiries.

In the light of the taxpayer's level of PAYE income, I find that it is reasonable for HMRC to suspect that (a) a source of funds for the purchase of Property 2 may be from one of the three trusts or BVICo (or a subsidiary), and (b) the destination of funds from the sale of Property 3 may be one of the three trusts or BVICo (or a subsidiary) – notwithstanding that he may have realised cash on the disposal of his previous home. I find that it is reasonable for HMRC to believe that the Third Party may be in possession of information which may indicate whether the taxpayer received funds for the purchase of Property 2 from one of the three trusts or BVICo (or a subsidiary), or whether the taxpayer distributed the proceeds of sale of Property 3 to one of the three trusts or BVICo (or a subsidiary).

HMRC have provided me with copies of the representations made by the Third Party, which I have taken into account in reaching my decision. Although Schedule 36 makes no provision for the taxpayer to make representations about the proposed information notice, HMRC have provided copies of his representations to me, and I have taken them into account in reaching my decision.

I address the representations made on behalf by the Third Party and on behalf of the taxpayer as follows:

HMRC have amended the third-party notice to exclude Property 1 from the scope of the notice.

I find that it is highly unlikely in relation to a conveyancing matter that all the information and documents held by a law firm on its files would be subject to legal professional privilege.

In relation to transactional matters (such as conveyancing), only legal advice benefits from privilege. Communications between a solicitor and his client will generally only benefit from advice privilege if they are both:

Many of the documents (electronic as well as hard copy) on a solicitor's conveyancing file will fall outside these requirements. To give three examples, (a) communications between a solicitor and persons other than the client (for example, the transaction counterparty) are unlikely to be privileged, as they are not confidential as between solicitor and client; (b) the fruits of the solicitor's advice – namely the documents giving effect to the transaction - will not be privileged as they are not communications; and (c) client ledger entries will not be privileged, as they do not contain legal advice.

On the other hand, correspondence between the client and the solicitor which seeks or gives legal advice on (for example) the terms of the contract or conveyance will be subject to privilege.

Although not cited to me, I am aware that in the context of s10 Police and Criminal Evidence Act 1984, the English Divisional Court in R v Inner London Crown Court ex p. Bains & Bains (a firm) [1988] Q.B. 579 held that records of a conveyancing transaction (including the conveyance and the record of how the client financed it) were not “items subject to legal privilege”. The court distinguished such documents from the solicitor’s advice on the wisdom or otherwise of proceeding with a conveyancing transaction which is privileged, and in DAC Beachcroft LLP v HMRC [2018] UKFTT 502 (TC) this Tribunal held that various documents created in the course of conveyancing transactions (such as a signed form of authority and a deed of declaration of trust) were outside the scope of legal advice privilege. Whilst these decisions are made in relation to advice privilege under English law (and the decision of the Divisional Court is a decision of an English court in relation to English criminal law), Northern Irish law relating to privilege has similarities to English law, and these decisions give an indication of the limitations of advice privilege in relation to conveyancing transactions.

I have considered the potential application of the Information Notice Regulations which deal with disputes as to the extent of legal professional privilege. However, these only have application after an information notice has been issued. But should a dispute arise between the Third Party and HMRC about whether a document or information is subject to privilege, these Regulations set out the procedure for this Tribunal to resolve the dispute. The Third Party should note the strict time limits set out in Regulation 5 (particularly in view of the bank holidays), and the absence of any power on the part of the Tribunal or HMRC to extend time limits.

I recognise that the Third Party will need to review their files carefully in order to determine to which documents and information advice privilege attaches, and which documents and information need to be disclosed. I have required HMRC to amend the terms of the third-party notice to make it clearer that the notice does not extend to documents and information subject to privilege, and to itemise separately the underlying executed conveyancing documents as these are highly unlikely to be privileged.

Article 8 provides that:

HMRC have acknowledged that the exercise of their powers under Schedule 36 engages Article 8. The question is whether – in the circumstances of this case – the exception in Article 8(2) applies. For the exception to apply, the interference must be lawful, necessary in a democratic society, and necessary for the economic well-being of the UK. In addition, the interference must be reasonable and proportionate.

In its decisions, the European Court of Human Rights has held that there is a public interest in effective tax inspections, but such interference must be subject to effective and adequate safeguards against abuse by tax authorities.

The exercise by HMRC of its powers to issue notices to third parties under Schedule 36 is lawful, and I find that the requirement to obtain authorisation of the Tribunal (where the consent of the taxpayer has not been obtained) means that there are effective and adequate safeguards against HMRC abusing its powers. For the reasons I have given, I am satisfied that it is reasonable for HMRC to seek the information that is the subject of the third-party notice, and that this represents a proportionate use of its powers. I find that the exception in Article 8(2) applies, and that HMRC are not in breach of their Article 8 obligations.

The duty of confidentiality owed to clients (whether pursuant to the professional obligations owed by solicitors to their clients, or pursuant to data protection legislation) is overridden by the statutory obligation to provide the information under the provisions of Schedule 36. I therefore find that the third-party notice overrides any duty of confidentiality that the Third Party owes to the taxpayer.

From my experience as a solicitor, I would expect that the Third Party will keep distinct and separate files (whether electronic or hard-copy) for each conveyancing matter on which it acts. The files that are the subject of the information notice relate to domestic and not commercial properties. I would therefore expect each file relating to Property 2 and Property 3 to contain a manageable set of documents. Whilst these documents will need to be reviewed in order to consider the impact of privilege, I would not expect that this would be an unduly onerous exercise.

The Third Party's submission is not particularised, and no indication is given by the Third Party of the number of documents involved, the manner in which they are filed, or the time it would take to review them – and in the absence of detailed submissions setting out precisely why compliance would be onerous, I place little weight upon this submission.

I find that any effort required by the Third Party to retrieve its files and review the content in order to identify privileged documents and information is not disproportionately onerous in all the circumstances of the case.

The taxpayer's representative submits that if the taxpayer has overlooked any tax liabilities, this has not been deliberate on his part. For this reason, issuing the third-party notice is heavy handed and an unreasonable and disproportionate exercise of HMRC's powers.

In considering whether to authorise the issue of the third-party notice, I need to consider whether the information sought is reasonably required by HMRC for checking the taxpayer's liability to tax. At this stage of HMRC's enquiries, I need not decide whether the taxpayer has not paid all his taxes – or (if he has not) whether that failure is innocent or deliberate. My decision is based on whether it is reasonable for HMRC to seek information from the Third Party.

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I find that HMRC have requested information from the taxpayer, and taxpayer has not disclosed such information to them. Irrespective of the reasons for the failure, on which I make no findings, I find that it is now reasonable for HMRC to seek to obtain information from the Third Party in order to ascertain whether the taxpayer has effective access to funds held offshore.

In the case of information notices issued to third parties without the taxpayer's consent, the notice cannot be issued without the approval of this Tribunal. As HMRC is unable to issue a third-party information notice without such approval, it is irrelevant whether HMRC's mind was made up at the time the paragraph 3(3)(c) letter was sent to the Third Party, because the notice could not be issued without (in this case) my approval. I confirm that I was unaware of this application until it was listed to be heard before me, and even if HMRC's mind had been made up, mine was not.

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At no point has HMRC prevented the taxpayer from disclosing information. It has always been open to the taxpayer to provide the information sought by HMRC. He has not done so. If he had provided the information – depending upon all the circumstances – I might have reached a conclusion that the information sought from the Third Party was no longer reasonably required by HMRC, in which case I would not have approved the issue of the third-party notice. I find that HMRC have not removed the taxpayer's right to provide the information himself.

Whilst the taxpayer's representative makes allegations about reputational damage, he has not given any examples of such damage having actually been incurred. I consider that it is unlikely that the reputation of the taxpayer and his business will have been damaged by the issue of the paragraph 3(3)(c) letter to the Third Party. The Third Party is a firm of solicitors, and will be under a professional obligation to keep the letter and the information notice confidential.

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I read this submission as relating to the paragraph 3(3)(c) letter to the Third Party, and not to the information notice (as the information notice can only be issued after the Third Party has had an opportunity to make representations about the scope of the proposed notice).

The taxpayer's representative has been in extensive correspondence with HMRC during the course of the enquiry. I am satisfied, and find, that the information notice has only been sought because the taxpayer has not provided information reasonably required by HMRC. The statutory scheme under Schedule 36 requires the Third Party to be given an opportunity to make representations to HMRC about the proposed notice, and therefore the paragraph 3(3)(c) letters are required by statute to be sent to the Third Party before any application for approval is made to the Tribunal. Once HMRC had reached the decision that it was appropriate to consider issuing information notices to third parties, they were required by statute to write to the third parties to seek their representations.

Section 18, Commissioners of Revenue and Customs Act 2005, imposes a duty of confidentiality on HMRC officials relating to information held by HMRC in connection with the functions of HMRC. However, this duty is expressly made subject to any enactment permitting disclosure. Schedule 36 is such an enactment, so disclosures made under paragraph 3(3)(c) do not give rise to a breach of s18, Commissioners of Revenue and Customs Act 2005.

The collection and processing of data in the UK is governed by the Data Protection Act 2018 and the UK version ("UK GDPR") of the EU General Data Protection Regulations ("EU GDPR"). Data controllers (which would include HMRC) are required to comply with the data protection principles, which includes having appropriate security measures in place to ensure the security of data. Article 6(1)(e), UK GDPR provides that it is lawful for data controllers to process data where it is necessary of the performance of a task carried out in the public interest or in the exercise of official authority vested in the controller. Section 8, Data Protection Act 2018 provides that Article 6(1)(e) includes processing necessary for the exercise of a function conferred by an enactment. Additional exemptions from the obligations imposed by UK GDPR in relation to the assessment and collection of tax are set out in paragraph 2, Schedule 2, Data Protection Act 2018. I find that this means that the exercise of HMRC's powers under Schedule 36 will not give rise to a breach of either the Data Protection Act 2018 or UK GDPR.

The Official Secrets Acts 1911 to 1989 are (in essence) only relevant in a case of a damaging disclosure made without lawful authority of information relating to national security or intelligence. They are clearly not in point in this case.

I note that the Third Party has not been informed of the reasons why HMRC are seeking the information and documents required by the proposed notice, and has not been given any details of the tax affairs of the taxpayer. No information about the tax position of the taxpayer have been disclosed – so it is arguable whether there has been any breach of any duty of confidentiality owed to the taxpayer by HMRC. I recognise that giving the third-party notice (and previously seeking representations) may cause the Third Party to wonder why the notice has been given, but the correspondence between HMRC and the Third Party relating to the affairs of the taxpayer has been limited in their scope and I find that if there has been any disclosure, it has been proportionate and reasonable.

It is not within the scope of the Tribunal's powers to make orders for redress and reparation arising from the exercise of HMRC's powers under Schedule 36. But, on the basis of the evidence before me, I would have found that HMRC have not improperly exercised their powers under Schedule 36 in any event.

Having considered the evidence provided and submissions made by HMRC in support of their application under paragraph 3 for approval of the giving of a notice under paragraph 2 to the Third Party, I am satisfied that:

I approve the giving to the Third Party the third-party notice in the form annexed to an email sent to the Tribunal on 7 December 2022 and set out in the Appendix to this decision.

This document contains full findings of fact and reasons for the decision.