The UK Government struck a deal today with Liechtenstein, the tiny Alpine principality, to effectively end secrecy for Britons who hold accounts in the tax haven.

HM Revenue & Customs (HMRC) has agreed with Liechtenstein to start exchanging information while UK residents with secret Liechtenstein accounts will be offered the chance to volunteer details of their deposits in return for limited penalties and low risk of prosecution.

The Liechtenstein authorities will be asked to close the accounts of those who do not make full disclosure.

Penalties on unpaid tax will be capped at 10 per cent of tax evaded over the last 10 years providing the account holder provides HM Revenue & Customs (HMRC) with full disclosure.

Up to 5,000 British investors have an estimated £3 billion stashed away in secret accounts in Liechtenstein.

International pressure on the principality has mounted since a whistle blower from LGT, Liechtenstein's largest bank which is controlled by the royal family, sold account details of hundreds of rich overseas investors to tax authorities in Germany.

It emerged that one of the people under investigation by German authorities was LGT's chief executive, Max von and zu Liechtenstein, brother of the ruler Prince Alois.

The resulting investigations has already led Liechtenstein to strike similar deals with the US and Germany. Switzerland has also recently come to a legal settlement with the US over disclosing the details of accounts of US citizens.

The small principality between Switzerland and Austria, controlled by its hereditary rulers, currently Prince Alois, is renowned for the secrecy that shrouds the financial affairs of rich investors.

Prime Minister Gordon Brown has been keen to join international efforts to end secrecy in offshore tax havens and earlier this year HMRC signed similar deals with Guernsey, British Virgin Islands, the Isle of Man and Bermuda. The Alpine principality is outside Britain's direct influence.

It was once considered to be among the most secretive jurisdictions in the world.

Mr Brown faced embarrassment earlier this year after it emerged that Glen Moreno, a banker at Fidelity and chairman of Pearson whom he had appointed chairman of the UK Financial Investments, the body that manages taxpayers’ stakes in British banks such as Lloyds and RBS, was a trustee of LGT, the bank whose leaked account details sparked worldwide investigations of tax evasion.

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