In HMRC v Third Party and Taxpayer [2023] TC8706, the First Tier Tribunal (FTT) approved the issue of third-party information notices to a law firm in respect of property transactions. The information requested was not protected by privilege or impinged the individual’s human rights as they were reasonably issued.

  • A law firm had acted on behalf of the taxpayer in the purchase of properties.
  • HMRC suspected that the taxpayer had not disclosed their worldwide assets held through Non-resident Trusts.
  • HMRC issued Schedule 36 Information Notices to the individual the information for which had not been provided.
  • HMRC then issued Third-Party Notices to the law firm requesting:
    • Client account details.
    • Correspondence between the firm and taxpayer.
    • Evidence provided by the taxpayer to confirm the source of funds.
    • Completion notices for the property purchases.
    • Details of mortgages taken out to fund the property purchases.
    • Details of where funds had come from to purchase the properties.
  • The law firm made representations advising:
    • The documents requested were not reasonably required.
    • Documents were protected by legal professional privilege.
    • The requests were breaches of the Human rights and data protection legislation.
    • Providing the documents requested would be onerous.
  • HMRC asked the FTT to approve the notices.

The FTT found that:

  • It was for HMRC to satisfy the FTT that the information requested was reasonably required to check the taxpayer's position and that the information requested was a reasonable use of HMRC’s powers.
  • HMRC had reasonable grounds to suspect the taxpayer may have underdeclared income and gains as:
    • The taxpayer was the settlor of three offshore trusts.
    • Details of the trusts and whether the taxpayer was a beneficiary of those trusts were unclear.
    • Given levels of income, it was reasonable for HMRC to suspect funds for the property purchases came from elsewhere.
    • The taxpayer had not provided information and documents when subjected to a Schedule 36 notice themselves, so it was reasonable for HMRC to approach third parties for the information.
  • Generally, communication between a solicitor and client will benefit from privilege if they are both:
    • Made for the purposes of seeking legal advice from the solicitor, or from the solicitor giving legal advice.
    • They are confidential as they are between solicitor and client.
  • The conveyancing documents requested fell outside these requirements:
    • Communications between the solicitor and someone other than the client are unlikely to be privileged.
    • The documents giving effect to the transaction will not be privileged as they are not communications.
    • Client ledger documents do not contain legal advice so are not privileged.
  • While a Schedule 36 notice could potentially be in breach of an individual’s human rights, as the investigation was in the public interest and there was an appeal process through the tribunal as a form of protection, the powers were being exercised lawfully and were proportionate.
  • Schedule 36 notices override the duty of confidentiality owed to clients.
  • The information request was for documents from the law firm's conveyancing files, while these needed review for privilege, this was not viewed as onerous by the FTT.
  • HMRC had not breached confidentiality owed to the taxpayer as Schedule 36 was an enactment permitting disclosure.

The appeal was allowed and the third-party notices were approved.

Useful guides on this topic

Sch 36 Information Notices
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

Sch 36 information notices: At a glance (freeview)
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

Sch 36 third party notices
When can HMRC require a third party to provide information or produce a document in relation to a taxpayer? Who can appeal a notice? What rights does the taxpayer have?

External links

HMRC v Third Party and Taxpayer [2023] TC8706

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