Taxmen to probe MPs over profits from home sales
• Inquiry will focus on cash made from second homes
• Former standards chief attacks Jacqui Smith expenses claim
- The Observer, Sunday 10 May 2009
Work and Pensions secretary James Purnell. Photograph: Carl Court/PA
The crisis over parliamentary expenses reached new heights last night as it emerged that HM Revenue and Customs is to investigate whether MPs have deliberately evaded capital gains tax when selling their second homes.
News of an inquiry by tax officials, which follows days of leaks about the way MPs have exploited the Commons' allowances regime for private gain, will inflict further damage on the already battered reputation of parliament.
In a separate development, in an article for today's Observer, Sir Alistair Graham, the former chairman of the committee on standards in public life, describes the behaviour of the home secretary, Jacqui Smith, as "near-fraudulent" in relation to her expense claims.
Smith registered the house she shared with her sister in south London as her primary residence, allowing her to claim the parliamentary allowance of up to £24,000 for her family home in Redditch, Worcestershire, where her husband and children live.
"One has to be careful with the word 'fraudulent'," Graham writes, "because in the criminal sense there needs to be guilty intent. However, it seems to me there may be intent here and in similar cases that have emerged. People seem to be thinking, 'What's the best way to use the system so I can maximise the personal financial return to myself?'"
Graham's comments brought an immediate reaction from Smith. Her spokesman said that the home secretary would be seeking legal advice about what he had said. "This is a malicious falsehood, and implies that Jacqui is lying. He seems intent on attacking her without examining the facts of the case," the spokesman insisted.
The dispute broke out as opinion polls showed Labour to be suffering the most as a result of the expenses saga. A survey for the Mail on Sunday put Gordon Brown's party on 23% – its lowest rating since polling began. The Conservatives appear to be emerging unscathed as the controversy grows – a full 22 points ahead on 45%, enough to give David Cameron a landslide victory.
Last night a string of fresh revelations emerged about expenses claimed by MPs and peers. These included claims that:
• Kitty Ussher, a junior government minister, asked for thousands of pounds to pay for a full makeover of her second home within 12 months of becoming an MP. The Sunday Telegraph says she claimed £20,000 for the refit.
• Baroness Thornton, a Labour minister in the whips' office, has been claiming £22,000 a year in expenses by saying that her mother's bungalow in Yorkshire is her main home. As a result the peer, who has a £1m house near Hampstead Heath, has been able to claim around £130,000 since 2002.
• Stephen Byers, the former cabinet minister, has claimed £125,000 in expenses for a home which was owned outright by his partner, where he lived rent-free.
• Five Sinn Féin MPs received £500,000 in second homes allowances despite not taking up their seats in the House.
The forthcoming investigations by HM Revenue and Customs (HMRC) will focus on suspicions that some MPs have been changing the status of their first and second homes not merely to maximise the amount they can claim in allowances, but also to minimise exposure to capital gains tax (CGT) when selling their second homes. There is no CGT on the sale of first homes in most cases.
The Daily Telegraph, which has published selected details of millions of claims by Britain's 659 MPs over the past three days, revealed on Thursday that one of the ways in which MPs can "work the system" is by claiming that their second home – on which they can claim generous parliamentary allowances – is in fact their first home for the purposes of tax.
An HMRC official said: "Once these declarations were made public, we began to examine them to ensure that MPs have paid the right tax. Avoidance of capital gains tax is just one of the issues that have arisen from these articles."
Hazel Blears, the communities secretary, last night admitted not paying capital gains tax on the sale of a £200,000 flat in Kennington, south London that had been designated as her "second home". She had claimed £850 a month from the House of Commons for the mortgage on the flat until it was sold in August 2004 for a profit of £45,000, it was alleged last week. MPs can only make such claims on properties they designate to be their second homes.
Her spokesman insisted she had done nothing wrong by not paying capital gains tax. "Hazel has complied with the House of Commons authorities and the Inland Revenue. No liability for capital gains tax arose on the sale of her flat," he said.
The latest controversy involving Blears raises further questions as to whether Gordon Brown will retain her in any ministerial capacity following last week's attack on his leadership. In an article for the Observer she described the government's recent performance as "lamentable".
Another of those who did not pay CGT when he sold his second home is James Purnell, the work and pensions secretary. Although in his case there was no evidence of any wrongdoing, suggestions that MPs may be systematically avoiding tax have alarmed HMRC officials. HMRC will also take a close look at MPs' income tax payments, as many of their perks could be seen as "benefits in kind" which should be taxed.
Mark Wallace, campaigns director for the Taxpayers' TaxPayers'correct Alliance, welcomed HMRC's inquiries. "It is totally unacceptable for elected representatives to live by one set of rules and dictate another," he said.
An HMRC spokeswoman said: "We use a wide variety of information sources to ensure the tax system operates as it should."
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