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JAMES PURNELL, a rising cabinet star, was plunged into a new row this weekend about MPs’ expenses over his ownership of two properties.
The controversy centres on a flat that he bought in London before becoming an MP and his Manchester constituency home, which he acquired several years later. He was able to claim thousands of pounds of MPs’ expenses on the London home and is accused of exploiting a tax loophole to avoid a huge bill on its sale.
Purnell, the work and pensions secretary, received about £20,000 a year in allowances on the London flat because he had told the Commons authorities it was his second home.
But when he sold the flat in October 2004 he told the Revenue that it qualified as his main home, allowing him to escape thousands of pounds in capital gains tax charges, which can be levied at up to 40%.
This weekend Norman Baker, the Liberal Democrat MP, said: “MPs can’t argue with the House [of Commons] authorities that it is a second home and then argue with the tax authorities that it is the main home. They have to be consistent in applying their logic.”
There is no suggestion that Purnell broke tax laws or flouted Commons rules, but Mike Warburton, of Grant Thornton, the accountants, said: “The rules around capital gains tax are very complicated and there are plenty of ways to get around them if you know how. The difference is, of course, that MPs can also claim lots of tax-free allowances and expenses to run these second homes.”
Purnell, a former adviser to Tony Blair, bought his London flat in 2000, according to Land Registry records, before he became an MP. When he sold the Bloomsbury mansion flat in October 2004, he avoided capital gains tax because he said it qualified as his main residence.
However, from April 2003 if not earlier he was telling the Commons authorities that his London flat was his second home and claiming about £20,000 a year in housing subsidies.
Purnell was elected an MP in 2001. He confirmed this weekend that he bought his Manchester constituency home in June 2002 and at that point it became his main residence. That would have enabled him to claim housing allowances on his second home in London, under rules allowing MPs to claim the cost of staying away from their main home.
Purnell confirmed that from April 2003 he claimed the second-home allowance on his London flat. He said he could not recall which property he claimed on between 2001, when he became an MP, and 2003. He said that the parliamentary authorities had destroyed the records because they were so old.
Existing records show that the MP claimed about £20,000 a year in additional-cost allowance between 2001 and 2007. The allowance can be used by MPs to subsidise the cost of having two houses and to pay mortgages and refurbish properties. In the financial year 2003-4, Purnell claimed the full available amount, £20,333, in additional-cost allowance.
He sold his seventh-floor flat in London in October 2004, escaping capital gains tax, which is payable on second homes. He said the flat was classed as his main residence under capital gains tax rules. They allow this if it has been the owner’s main residence at any time in the previous three years. Although this is allowed under the tax rules, the flat was at the time of sale the MP’s official second home under parliamentary rules.
A spokesman for Purnell said he had not broken the rules or been inconsistent: “James has correctly followed both House of Commons and HM Revenue & Customs rules. He has not broken any rules and it is wrong to suggest otherwise. James bought his constituency home in June 2002. He sold his London home in October 2004. No capital gains tax was due on that sale. The Taxation of Chargeable Gains Act 1992 provides an exemption from capital gains tax where the property has been the individual’s only or main residence and it is then sold within three years.
“As the London property was the only one James owned until June 2002 and it was sold in October 2004, that condition is clearly met.”
Purnell was promoted last month from culture secretary to work and pensions secretary, head of a huge-spending department and responsible for stamping out benefit fraud. He succeeded Peter Hain, who resigned after the police launched an investigation of the funding of his deputy leadership campaign.
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blimey this is terrible journalism. "there is no suggestion he has broken or flouted the law". why the headline then? this guy has done nothing wrong
Julian, london,
He seems to be in the clear, legally and morally. Anybody can claim the "prinicpal private residence" exemption for capital gains tax up to three years after moving out of a property. He seems to have done exactly that. To talk about breaking (or even bending) rules is nonsense. It's the law
Alex, London,
I believe the " Internet " allows rapid communication over great distances. Why do any of them need a second home?.
Pete, Hull,
Is this the chap who will be responsble for ensuring that Incapacity Benefit claimant don't fiddle the taxpayer? Just to put it into perspective - Mr Purnell's annual second home allowance would fund a person's IB for five years.
Chuck W., Ipswich, Suffolk
Oh, that's normal in the Czech Republic. Some comments from the newspapers, but nothing ever changes. Much the same as here.
Pavel, Canterbury, Originally from the Czech Republic
The criminal offence of 'dishonestly obtaining by deception' comes to mind
M Shipway, Gravesend, England
If you can not do this as an employee in a private company, why should you be able to do this as an MP? Do the rules suddenly not exist?
Chantel, Wales,
Why all the surprise? This kind of thing is typical of New Labour politicians.
RB, Aberdeen,
"The Ways and Means Committee" stands for "Ways of avoiding taxation" amd " Means of getting Rich" for Britains MPs. The parliamentary system needs a major overhaul.
In South America the word corruption is used to describe the misuse of public monies. In Britain it ishould be named "The Ways and Means".
Jim Wills, Kuala Lumpur, Malaysia
I have to say that Pete from Edinburgh has made an excellent suggestion with regards to MP's having access to a central pool of "hotel" rooms.
This really would pull the rug from under the feet of those who have thier greedy little snouts so deep into the trough that they cannot hear the sound of disquiet coming from the voting population!
Mike, Harrow,
The Revenue require Taxpayers to keep records for SIX years. Why should the body which passed the legislation which enshrines this issue not keep to the same timespan.
All MPs, with the honourable exception of Norman Baker, are decidedly dodgy. Sack the lot of them.
Jack Gamon, Sussex,, England
Why not set up a MPs dormitory. Bit like a student hall of residence. Then any one of them who needs a room gets one supplied. Those who live local will just go home. Others will then have a place to stay. Then there wil be no need for second home allowance, expenses on gardening, double relisef for married MPS jealousy on capital gains or ambiguity about which home is the principal residence etc.
I suspect none of us would mind if these were quite decent rooms too ( OK, decent not opulent) so don't think student hall, think serviced flats.
Anything to make it open and above board and stop the fiddling and lying
Pete, Edinburgh,
Oh dear.....another 'mistake'. Yeh right.
judy, Liverpool, England
I agree. This doesn't look at all good. I believe that the parliamentary definition of what constitutes a "second-home" should be expanded to to include the words "and not primary residence as defined by HMRC." This also begs the question, where does he stay in London since he disposed of his flat? I can't imagine that he commutes from Manchester to London every week day. According to Wikipedia he was reported as being the most expensive MP in Greater Manchester, with expenses in 2004 of more than £120,000.
Let's tidy-up the whole expenses system for MPs and remove any ambiguities in the wording of the rules that facilitate such abuse.
Alex, Guildford, UK
This could be simply sorted by ensuring that publicly funded property becomes public property once the individual is no longer an MP. Or ensuring that MPs rent rather than purchase.
What is astonishing is that behaviour that would get a public/private employee fired is perfectly "acceptable" for an MP.
Mark, Derby,
Are the tax rules designed to incoporate loopholes? Or to create jobs for lawyers who write them and accountants who translate them? There is no need for such a complicated system which was obviously designed to confuse. Buy to let is another mindbender. It is obvious that the way politicians are allocated housing benefit needs laid bare and simplified. State owned apartments and flats would be be the obvious. Like no 10 and 11 I suppose. The olympic fiasco could have paid for that twice over.
kenny Livitt, hove,
What have I read?
"parliamentary authorities had destroyed the records because they were so old"
He is talking about 2001 and 2002. Surely this is a ridiculously short time to hold records, which might, amongst other have tax or fraud information? So the records of all the expense shenanigans from more than five years ago have been carefully destroyed?
Come on "The Times", surely there must be a report in this???
Bob Travels, Stevenage,
This is stirring the pot by the Times and mean and mispirited of them. Seperating the facts from the Spin it seems the home was once his primary residence, he became an MP so got a consituency home - he claimed expenses as MPs are allowed for having to run two households. His London home would have been exempt from CGT as it HAD been his main residence in the previous years.
Is it any wonder nobody decent wants to go into politics any more when even reasonable behaviour is exposed to such cynicism and point scoring by the media?
G Mac, Birmingham, UK
Purnell's windfall/clever legal wheeze has netted him about four years' worth of disability benefit at one fell swoop. "Do as I say, not as I do..." A Labour government is emphatically NOT there to further enrich the wealthy and further impoverish the economically weak. And such a blatant example of double standards will further erode trust in a Labour government.
Julia Iskandar, London, England
Loathe though I am to jump to the defence of any Labour politician, this is highly disingenuous on the part of the journalist and Norman Baker. The legislation and HMRC's highly publicised guidance on it are absolutely crystal clear: to claim principal private residence relief on the sale of a property you need only have occupied it at some point in time as your main residence (which Mr Purnell had). This was the express intention of Parliament in passing section 222 of the Taxation of Chargeable Gains Act 1992. This is not a "tax loophole", HMRC and the government expressly say you can do this. This boils down to the usual envy on the part of those who are too lazy, too mean or too stupid to either pay for basic tax advice or bother going looking for it on HMRC's website. This is not some expensive, sophisticated tax scheme. It is designed so that a taxpayer is not penalised for not being able to sell one home before purchasing another within 3 years.
Mark, Sevevenoaks, Kent
It used to be that to be an MP you had to be one of the landed gentry.
Now it appears that when you become an MP you get to become landed gentry at the taxpayers expense.
How times move forward...
Roger Evans, Peterborough,
The issue we need to debate is whether if MPs do fiddle expenses or loopholes, whether they are still fit for office or whether we need a jury of say 30 or so members of the public to decide if they shoud be sacked by the jury.
This is about accountability to the people, a principle at the heart of our system.
Secondly, the other point we need to have a debate is whether MP's fat pay should also be decided upon by this jury.
F Cockburn , London, UK
mr Boulger, you ignore the fact that he must have told HMR&C the flat WAS his PPR while telling Parliament it wasnt his main house. If he had never told HMR&C this he would not have qualified for the 3 year rule as a PPR and he would have paid CGT. Therefore he has avoided tax by telling 2 different tales, while taking tens of thousands of pounds from us all in the meantime to subsidise his profits.
Gives him great moral authority to sort out the benefit system - do as I say and dont abuse things and not as I do, as usual from politicians.
david, leeds, yorkshire
He at least doesn't appear to have evaded any capital gains tax (CGT). The last 3 years of ownership of any property which has been the taxpayer's principle private residence are treated for tax purposes as if the property was still the owner's principle private residence, even if it was not. This was introduced to give people who wanted to move plenty of time to sell their property at times when the market was difficult without having some of any capital gain subject to CGT.
As James Purnell bought his Manchester home in June 2002 and sold the Bloombury flat in October 2004 there would consequently be no CGT liability. Many people in this situation plan to sell their property within 3 years to avoid CGT and that may well have been a factor influencing the timing of Mr Purnell's sale.
Ray Boulger, Redhill, England
Why have you ommitted to mention that a main residence does not become subject to CGT for 3 years after it has ceased being the main residence?
Jo, Kendal,