You cannot fly the Union Flag on a boat regardless of where it is. Remember the law was originally formulated to stop vessels entering harbours and claiming free moorings and in those days most harbours were not man made they were adapted rivers.

I believe this is the maximum penalty...

(a) on summary conviction, to a fine not exceeding Ł50,000;

(b) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine, or both.

(7) This section applies to things done outside, as well as to things done within, the United Kingdom