MPs' EXPENSES: The second home shuffle - how Easy Rider Hazel Blears took a short cut on tax

By Michael Seamark
Last updated at 1:40 AM on 11th May 2009

Hazel Blears insisted yesterday that she had broken no rules despite dodging an £18,000 tax bill when selling a London flat.

The Communities Secretary made a profit of £45,000 when she sold the property for £200,000 five years ago.

She had designated the Kennington flat as her 'second home' which, under Commons rules, enabled the motorbike-loving Salford MP to claim back thousands in mortgage interest and running costs.

Hazel Blears

Life in the tax-free lane: Hazel Blears, pictured yesterday, dodged an £18,000 tax bill when selling a London flat

But she admitted did not pay Capital Gains Tax - then charged at 40 per cent when a property regarded by the taxman as not a main residence is sold.

Miss Blears said 'no liability' had arisen, indicating that she had simultaneously registered the flat as her primary home with HM Revenue and Customs.

MPs now face fresh scrutiny over parliamentary expenses with reports that HMRC officials are to investigate whether any have deliberately avoided tax when selling their second homes.

But some tax specialists suspect the Revenue is more likely to concentrate on whether politicians should, in fact, be paying income tax on the huge financial ' benefits' paid for carrying out their parliamentary duties.

Fellow Cabinet minister James Purnell has already been accused of tax avoidance after selling a London flat in similar circumstances to Miss Blears.

There is no suggestion that either politician has broken tax laws or flouted Commons rules. But suspicions that scores of MPs could be systematically avoiding Capital Gains Tax added more fuel to the expenses scandal. Sir Alistair Graham, former chairman of the Committee on Standards in Public Life, said: 'MPs gain from both arrangements and they should not be in a privileged position. It is totally unacceptable because it is not something available to the rest of the public.'

LibDem MP Norman Baker said: 'I think some MPs seem to think they are immune from normal practices and laws of the land.'

The Kennington flat was one of three properties whose status Miss Blears 'flipped' and claimed expenses for in a single year. In March 2004 she told Commons authorities that her second home was a house in her Salford constituency, which she has owned with her husband since June

1997. During that month she claimed for an £850 television and video recorder and a £651 mattress for the house.

The following month she redesignated the Kennington flat as her second home with officials - enabling her to claim £850 amonth mortgage interest payments.

In December 2004 Miss Blears purchased another flat for £300,000 in Clerkenwell - now worth nearly £500,000 - and claimed monthly mortgage interest of £1,000 and declared it her second home. Over the next four months she claimed for groceries, furniture worth £4,874, an £899 bed and £913 for a new TV.

Outside her house in Salford yesterday she insisted: 'I have complied with the rules of the House and the rules of the Inland Revenue.

'I understand how strongly the public feel about it and they hate all of this and that means we have got to get it sorted out as quickly as possible. The system is wrong, it needs to be changed.'

In February 2008 Work and Pensions Secretary James Purnell was accused of pocketing thousands of pounds in expenses and avoiding taxes by designating one of his properties as both a main residence and second home.

Mike Warburton, a tax accountant at Grant Thornton, said what both ministers had done was perfectly legal.

'They can have it both ways. The Inland Revenue rules work entirely independently of the parliamentary arrangements.'