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If yes, what action should be taken and on what grounds is it classed as illegal?

Considering that both individuals are UK citizens, with a passport registered respectively, does it go against the law to do the aforementioned.

Providing that, the true owner explicitly asks for it to be returned to them nor asks for the passport to be held be the individual, in the first place.

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    Doesn't the UK passport remain the property of the government? – DJohnM Dec 7 '15 at 19:49
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    @DJohnM Good spot. Yes; they are. Passports remain the property of HM government. Which, amongst many other reasons/laws is why you cannot sell a passport. Passports, beyond their physical form, are a marker for citizenship in your country of perminent residency - we can't own that ;P – user3652 Dec 7 '15 at 20:16
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It is almost certainly illegal.

I was unable to find UK provisions but the penalties for stealing an Australian passport are 10 years imprisonment or a fine of up to 1,000 penalty units (at time of writing a penalty unit was $170 so, $170,000) (Section 32(4) of the Australian Passports Act 2005). Under this law, the crime is knowingly having it in your possession when you know it isn't yours. Obviously, normal familial relationships would not be prosecuted (i.e. one member of the family carrying all the family's passports). Certainly, if the true owner asked for it and the possessor refused, that would trigger the crime.

Furthermore, it is completely pointless - all the original owner has to do is report it stolen and apply for another one.

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