James Purnell and Geoff Hoon avoided tax on home sales

Cabinet ministers James Purnell and Geoff Hoon avoided tax on home sales

The Cabinet minister saved thousands of pounds after informing the parliamentary authorities that Manchester was his “main” home while the tax authorities considered London to be his “primary” residence. Mr Purnell claimed for a £395 accountant’s bill that included “tax advice provided in October 2004 regarding sale of flat” on parliamentary expenses which are intended to cover the costs of running an MP’s office.

It can also be disclosed that Geoff Hoon, the Transport Secretary, did not pay capital gains tax on the sale of his London home in 2006. Earlier this week, Gordon Brown criticised Hazel Blears’s similar failure to pay capital gains tax as “totally unacceptable”. Miss Blears, the Communities Secretary, wrote a cheque for £13,000 to cover the tax last week. She said yesterday that acting within the rules “doesn’t cut it with the public”.

Accountants have compared the behaviour of Mr Purnell and Mr Hoon to that of Miss Blears. The ministers are not accused of breaking the law but their behaviour is unlikely to be regarded as ethical by many voters. Capital gains tax of 40 per cent of profits is usually only avoided when selling a main or family home.

Mr Purnell bought a flat in a central London mansion block in 2000 and a house in his Manchester constituency in June 2002. He told the parliamentary authorities that his main home was in Manchester and claimed the “second home” allowance in London. In October 2004, Mr Purnell sold the London flat. He did not pay capital gains tax on the sale as the property was regarded by HM Revenue and Customs as his “principal” residence. It is not known how much profit Mr Purnell made from the transaction. It appears that Mr Purnell received specialist tax advice over the sale of the property and took advantage of a loophole in the rules. This is available to everyone and allows sellers to claim that a property is a main residence for capital-gains tax purposes provided they lived there less than three years before the sale.

Mr Hoon is believed to have made a profit of around £300,000 on the London home he sold in 2006. The property had been rented out for four years before it was sold. During this time, he had lived in a grace-and-favour flat in Whitehall and owned a substantial “family” home in Derbyshire. Within months of changing ministerial positions and leaving the grace-and-favour property, Mr Hoon sold the London house, telling the tax authorities that it was his “principal” residence. He then bought another London property and claimed expenses on that.

Miss Blears is fighting for her political survival after she admitted avoiding capital gains tax on a London flat she sold in 2004, making profit of £45,000. In her Salford constituency yesterday, Miss Blears said she was “getting on with the job” and that the Prime Minister had “full confidence in me”. However, she received a hostile reaction at a meeting of the Labour group on her local council this week. One source said: “I have never been to a Labour group meeting like it. They are angry at what Blears did in avoiding that payment. But when she appeared with a cheque for £13,000 saying she would it pay back, it just made matters worse.”

The Communities Secretary was asked about Gordon Brown’s assertion on Tuesday that her behaviour over her CGT was “unacceptable.”

She said that Mr Brown’s spokesman had said she was doing “a great job”. In fact the spokesman had said she was doing a “good job.”

Last night, a spokesman for Mr Purnell said: “Any allegation that James avoided capital gains tax is completely untrue. When he bought his constituency home, the sale of his London flat fell through, but it was sold within the period that HMRC continue to treat it as not being liable for CGT.

“No one pays CGT when they sell the only house they own and James was not liable for capital gains tax on his London flat.

“This would have been true for any taxpayer — there was no special treatment. To be clear that he was paying the right tax, James sought advice at the time and has since contacted the HMRC to ask them to double check. HMRC have confirmed that there is no CGT to pay.”

Mr Hoon said: “I reject any suggestion of any wrongdoing in relation to my declarations to the House of Commons authorities and HMRC. I have been consistent in my declarations to both parties and I have been assiduous in ensuring that I have met my reporting obligations and my tax liabilities.

“In 2006 the property was sold. A full tax declaration was made on my behalf by a reputable company of chartered accountants. They advised — and this was agreed by the Inland Revenue — that there was no liability for capital gains tax.”

Mr Hoon added that his tax arrangements had been reviewed recently by HMRC, which confirmed that there was no liability for CGT.