So here are the facts as we know them (and see his statement that Helen blogged):
- In 1999 – 2006 he and his wife owned one property (in London)
- In 2005 he became an MP
- In 2006 he bought a house in his constituency. That house has been designated his main home for Parliamentary expense purposes.
- In 2007 they sold their property in London and bought another one. They haven’t paid capital gains tax on the sale.
Capital Gains Tax rules says that you don’t have to pay Capital Gains Tax when you sell your main home. If that was all they said then they’d be an issue because it’d look like at the point of sale he was saying one home was his main home for tax purposes and another was his main home for expense purposes. And on those grounds Lib Dems should criticise him, because that’s what many of us have criticised other MPs for doing.
But – and it’s a whopping big but – it’s not actually the truth.
That’s because, as Mike Smithson has pointed out, Capital Gains Tax rules say that if the property was your main home up to three years before you sold it, you don’t pay the tax. Three years before 2007 takes us to 2004. In 2004 there was just the one property owned and he wasn’t an MP.
So, as Mike puts it Danny Alexander “essentially is being accused of not paying a tax when no tax was due”.
And so my confusion. Front page splash story that someone doesn’t pay tax which the taxman says they don’t have to pay is not exactly a scandal. Especially when there’s not being any careful making of arrangements to minimise tax such as switching round which home is defined as which or using front companies or using overseas arrangements of anything like that. Even The Telegraph says, “There is no suggestion that Mr Alexander has broken any tax laws”.
The Telegraph does try to dress this story up as being about a “loophole” being used. But it’s a bit like attacking someone for not paying income tax on all their income because they’ve used the shocking loophole of claiming their personal allowance. I mean you could have decided to ignore the tax rules, skip over a significant part of how the system operates and just paid up some extra income tax couldn’t you?
Danny Alexander’s case is simple, clear and straightforward arrangement: you own a home, you sell it, the taxman says “no capital gains tax to pay” and so you don’t pay any.
(If you feel so moved, insert comments about the tax affairs of the owners of the Telegraph here; if such a straightforward situation as Danny Alexander’s is deemed worthy of criticism, what does that mean about the tax arrangements of the Barclay brothers?).
Of course, the Telegraph has a bit of form on page 1 splashes that turn out to be very different. During the election they ran a big page 1 story about Nick Clegg’s financial affairs. As I blogged then:
Benedict Brogan has taken to the Telegraph blog to defend today’s coverage and comes up with this:
“The likelihood must be that it is evidence of disorganisation, nothing more, but don’t know that yet.”
Even if you agree with the first part of the sentence, that’s a remarkably weak excuse for a huge front page splash of a story. Oh we don’t know. And there’s most likely nothing wrong. So we’ll just splash it all over page one.
Ah bless.
Decent Telegraph journalists (and there are many) will be wondering about why they’ve twice ended up with their paper running big front page stories which fit a particular political agenda and which don’t stand up to scrutiny. And nervous Telegraph journalists should worry about the drip drip damage to their paper’s reputation. All newspapers face a tough future working out how to get the public to pay for their output in some form or other; repeatedly damaging people’s trust in your ability to get stories right is no way to secure your future.
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116 Comments
Okay folks – here are a few thoughts about CGT…
Given that CGT is an ‘elective’ tax then anyone can avoid paying it by not selling assets at a profit… That could very well mean that every MP is avoiding CGT…
WOW – They are all be preventing the taxman from collecting £millions – what a scandal…
Also all those MPs should be disbarred from making any decisions in parliament and cabinet as they clearly have personal financial interests. Let’s just make the country ungovernable.
Nonsense isn’t it, but this is the ‘logic’ being applied by the DT in the name of investigative journalism – they are a disgrace to their profession – I had to check the date but no its not 1st April.
At the very least an apology of some weight is called for, personally I think the Editor should resign.
Great article. Sums up what most right people are thinking. We shouldn’t just think about Laws and Alexander, the Telegraph also ran a ‘non’ story about Clegg during the campaign if you remember. I don’t understand why such a respected paper would risk losing such credibility – they must be desperate for readers. It’s a non-story and the Telegraph are in danger of becoming the Sky News of the newspaper world. I have rarely agreed with the editorial line of the paper but nevertheless I did respect them. That respect has now evaporated. The Telegraph may now just have cried wolf one too many times.
It’s all very depressing, but I suspect this is not the end of it. The Telegraph will be rummaging around the bins of all the Lib Dems in the cabinet next to find their eating habits. Where they buy their clothes from ad infinitum. I was to be expected; I agree with scrutiny, but their are lines between public interest, half truths and privacy. The right-wing press do all they can to hide their internal affairs (tax for example) yet wish to take a moral high ground, that is neither truly convincing nor warranted. They are happy to run a front page story that has no substance, admits it has no substance, but in such small print or afterwords as to be throwaway.
I have not paid tax on my ISA I should I resign from Lancs County Council?
Please excuse the above grammatical and typo errors – I am having problems with my eyes (diabetic) and not due for a test for 4 months….so I am all podgy fingers and thumbs, hoping I hit the right keys on the old keyboard…….
There are so many people out there who miss the following two simple points:
1. What the DT are doing to certain politicians, can be done to anybody. To avoid it, the people who are the targets would have to have always avoided doing anything that can be misrepresented. If you think about that, it actually cannot realistically be done.
2. There is a difference between a bunch of people being convinced that something is true, and that same thing being proved to be true. That 90%, or even 100% of people believe something does not constitute proof that it is true. That you, as an individual, have become convinced, does not mean that it has been proved to you, it means you have become convinced of it.
Is it me or is the problem not that Danny broken the rules but that the tax system is broken and people can’t understand how it works?
From the outside as a sane human with a degree of understanding of how useless the tax system is, this is a non-story (if anything it shows that Danny understands the tax system and has filed his tax returns according to the rules unlike many other MPs) but that the DT has an agenda and is ‘out to get the coalition’. What we should be the issues are:
1. Why are the DT so scared that they feel that have to attack?
2. If our tax system is so complicated that a story like this can make the front pages, what can we do to ‘fix it’?
3. Should Danny refer himself to parliamentary stands just to make the point that he has nothing to hide?
4. How do we get David Laws back into government as its obviously a witch hunt? (Sorry David I’m not calling you a which and I have no issues with anyone flouncing around in a black dress, pointed hat and broom in their spare time especially if you can display the levels of capabilities to run the county – even if we disagree on certain topics)
5. The trolls insist that Lib Dems taking the high ground on expenses was a sham and that they were just as bad as everyone else. If that’s the case why are they not calling for the rest of the MPs that flipped to be removed from parliament?
I could go on like this all day pointing out the flaws with the DT and trolls but I also think its time to display the commitment and energy to show that we are committed to making this work (no matter how hard) for if we don’t PR won’t stand a chance.
My other thought is that David Laws would make an excellent Deputy Leader when the PSC to clear him of any wrong doing…
Mark – as usual a well written commentary. Typical of the telegraph. The a making a story out of nothing to suit their warped agenda!
Mark, I was just writing an almost identical piece to send to LDV. Thank you for publishing this. IMO Danny should speak to a Solicitor about this. He has clearly been Libelled.
Actually on balance, Laws was wrong to break the rules, whatever the motivation. It was a good story and there is no point shooting the messenger.
You are going to have to get used to this now you are in government. I don’t know what is about LDV writers psychology, but whenever one of your own is in trouble the tone goes all “how very dare they”.
the telegraph are weakening the libdems credibility day by day so they won’t be able to implement their policies. they are particularly angry about the libdems policy of raising capital gains tax,hated by right wing tories.
I would argue that as well as destabilising the coalition, I believe the Telegraph are after Cameron’s head, as they believe he is too soft. The problem is, who else in the Tory party is fit to be leader?
“He has clearly been Libelled.”
I think he probably has been libelled by this statement in the Telegraph article:
“Mr Alexander, who was appointed on Saturday after the resignation of fellow Liberal Democrat David Laws, designated the property as his second home for the purpose of claiming parliamentary expenses but described it to HM Revenue and Customs as his main home.”
On the basis of Alexander’s statement, he did not describe his London property to HMRC as his main home at the time of the sale, but only said that it had been his main home previously.
Guido,
If Laws is found to have broken the rules (that’s up to the PSC) then yes I believe you’re right.
However Danny hasn’t broken any law, as a member of the public, he could have done the same and HMRC would have been fine with it.
As you can see from the extract from the relevant HMRC leaflet below – it is perfectly legitimate to reduce the proportion of the CGT gain which is exempt from taxation when it is not appropriate to include the last 36 months. It is not a requirement to include the last 36 months as Alexander appears to have done so. Although waht Alexander has done is clearly legal, It is certainly not appropriate on moral terms to claim that a property is your main property for CGT purposes while you are being paid £37,000 of parlimentary expenses on it as your second home including some which were possible used to do up the property and enhance its sale value. Alexander could very clearly have opted to have had the proportion of his tax payer funded occupation of his London property subject to CGT – I fail to see why he didn’t on moral grounds.
David Laws behaves morally and goes because he breaches the rules, but doesn’t benefit form them financially. Alexander can stay because he is within the rules but his behaviour is morally dubious and he makes financial gains while staying with the rules. Perhaps those LibDems with principles may see the irony of the situation – I will just remember for the next time LibDems go into sanctimonious mode.
“If the dwelling house has not always been your only or main residence, you
will need to split the gain. When calculating the proportion of the gain
eligible for relief, you multiply the gain by a fraction equal to the periods of
occupation (including the final 36 months where APPROPRIATE) divided by the
period of ownership (both periods starting at 31 March 1982 if the house
was owned before that date). You do not introduce valuations of the
properties at the dates of changes of use.
@Guido
To be honest I don’t care what the colour of the politician, when the press decide to ‘out’ someone for their own selfish gain I get outraged, fed-up & bemused to certain level. When the public seem to believe the idiocies that are spouted then I want to cry. I don’t tend to publish that here (but do in ‘other places’) because of the audience (and I don’t troll on sites of the ‘others’ as that is – as my wife would say – ‘Scaring the normals’).
The problem is that the press will splash non-issues like this across the front pages and then put a 1 paragraph tiny retraction on page 23 when they get told off – imagine that the PCC actually had the balls to make the press accountable to the public (rather than run by the press) and the apology had to be twice the size of the original article. That would make a difference, but it is the job of the press not to report the news but to make money for their shareholders so until there exists sections to dent that profit they will continue on their merry way…
Question where is all the coverage of Trafigura in the press? Surely Carline Lucas’ maiden speech should have at least blipped on the radar? Or are these attacks designed to hide that? (sorry must remember to take the tin hat off more often)
Whilst I have immense personal sympathy for Laws (and nothing, I mean *nothing* which happens now will come close to the personal humiliation he has experience), he sailed too close to the wind with public finances to protect his privacy. That was wrong.
So is this. The DT’s attitude, that is. Did a Labour minister (so, not Jonathan Aitken or Neil Hamilton) not successfully sue for libel in the late 1990s?
Sue the b*stards. I’m not being sarcastic, but I think that someone needs to teach the Telegraph that this sort of innuendo is unacceptable.
@Guido
You are going to have to get used to this now you are in government. I don’t know what is about LDV writers psychology, but whenever one of your own is in trouble the tone goes all “how very dare they”.
I am sure that you are right about this, however do remember that we have been getting this rubbish for several years now – it may only have gained prominence with non Lib Dems now we are in government but certain elements of the press have been out to get the Lib Dems for a long time.
But when the articles are malicious and completely made up then you can’t blame people for getting a tad irate about it..
Sorry, that should read. “…I’m not being sarcastic; I think that someone needs to teach the Telegraph that this sort of innuendo is unacceptable.” I should proof read before I press “post comment” and not after.
@toryboysnevergrowup
Sorry let me get this right.
If I make a gain on a house that has (at sometime) been my main residence that I need to make an appropriate reduction in the gain based on the fraction of the time that I have owned it and time it was my main residence?
I bought my house in 1999 for £250,000
I move out the house as my main residence in 2006
I sell my house in 2007 for £350,000 making a gain of £100,000
I have lived in the house for 7 years and owned it for 8 years
To calculate the amount of the gain that I must count towards my CGT threshold for the year I must:
“If the dwelling house has not always been your only or main residence, you will need to split the gain. When calculating the proportion of the gain eligible for relief, you multiply the gain by a fraction equal to the periods of
occupation (including the final 36 months where APPROPRIATE) divided by the period of ownership (both periods starting at 31 March 1982 if the house was owned before that date). You do not introduce valuations of the
properties at the dates of changes of use.”
So the fraction of relief is
min(1,(7+3) / 8)%
which by my calculation 100% relief
The ‘APPROPRIATE’ phrase refers to cases where there are less than 3 years gap as is to stop people claiming negative relief (as Danny would have done if he was to ignore the term) as the function would become
(7+3) / 8)%
Which is a relief of 137.5% meaning I could claim an additional £37,500 of releif agaist capital gains tax in that year.
As I have already said the tax system is complicated and should be made easier, the language used in the tax code is open to ‘debate and interpretation’ but its (meant to be) designed to stop the stupidity of the second case. Maybe we should be campaign for the tax code to be parsed by the Plain English Campaign so this doesn’t happen again? (but then some would want all parliamentary documentation to go through the same process…)
“As you can see from the extract from the relevant HMRC leaflet below – it is perfectly legitimate to reduce the proportion of the CGT gain which is exempt from taxation when it is not appropriate to include the last 36 months.”
Look at the preceding paragraph, which says:
“The final 36 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point.”
Clearly that criterion is what is referred to by “where appropriate” in the paragraph you quoted. It means if the property has never been your main residence you can’t claim exemption for the final 36 months.
And – for once and for all – there is no implication that the property is your main residence in any sense during those 36 months. It needn’t be your residence at all. You could be living in Timbuktu or on the Moon as far as HMRC is concerned.
Guido: I’ve written in defence of people from other parties too, such as the absurd Mirror/Taxpayers’ Alliance attack on Cameron for his interns being reimbursed for their lunches. They didn’t object to the principle or to the parts of the claims that included meat or vegetables. No, they just objected to the chocolate. That sort of daft desire to micro-manage other people’s choices of food for lunch is wrong, whether it’s a Lib Dem or not. And yes, this was all way before coalition with Cameron!
Anthony
The last 36 months may always qualify for relief – but you are not duty bound to claim the relief, and as I said some people don’t. As I said legal and moral behaviour are not necessarily the same.
James
I am not defending the clraity of the HMRC leaflets – but in you example you could have opted to have had 1/8th of the capital gain subject to CGT.
Daily Telegraph personal finance section June 2007 – How to avoid paying CGT on a 2nd home http://bit.ly/beiqKx
toryboysnevergrowup
But why would you? HMRC would look at it and see that you haven’t claimed the full entitlement and wonder why. The words are there to stop *stupid* interpretations of the rules not to give you the chance to pay *more* tax.
And if you check HMRC website the wording it doesn’t include APPROPRIATE it says the last 3 years always qualify as long as at some point it was your main home…
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm
“The final three years (36 months) always qualify for relief, even if you weren’t living there, as long as it’s been your only or main home at some point during the time that you’ve owned it.”
Danny Alexander should sue the Telegraph for libel. That should teach them.
“The last 36 months may always qualify for relief – but you are not duty bound to claim the relief, and as I said some people don’t.”
What’s your evidence that some people don’t? I haven’t seen any suggestion of that in anything I’ve read.
It becomes rather ludicrous when people are accused of behaving improperly for not paying tax on something that’s exempt from tax!
Quite right James- and between 1999 and 2006 it was his only property. He didn’t become an MP until 2005.
Telegraph avoided corporation tax for 2008 tax year
I thought one of the lib dem core values was the idea that less legislation is a good thing because people can be trusted to do the right thing, and not just the legal thing?
The purpose of the 3 year legislation is to protect the housing market from chain paralysis during a sluggish period. He clearly made a capital gain at the tax payer’s expense – claiming expenses to make mortgage payments on and fix up a property which he then sold on at a time when the housing market was on the up.
We could increase the detail of all our legislation to describe an increasingly pedantic list of situations in which the loop hole does or doesn’t apply, but isn’t that exactly the sort of over-legislation the Lib Dems are against?
Many people voted Lib Dem for the first time on the basis that they were the only party not associated with these kind of abuses. Nick Clegg forgot to add the caveat ‘ … as far as I know, but we haven’t really looked into it.’
Regardless of whether it was legal, integrity is defined by how we behave in the loop holes. As Guido said, the fact that he can explain it as a technicality of the tax system doesn’t make it ok.
Kitty Ussher’s flipping for CGT was legal, but she resigned.
https://www.libdemvoice.org/kitty-ussher-unrepentant-over-expenses-18426.html
However I think the difference is that she asked for advice on how to do it, whereas Alexander was always not going to pay it?
I certainly think the Telegraph should apologise to Alexander if they have (which it seems like) misrepresented what he said to the tax authorities.
Stray
But making capital gains from properties on which the taxpayer has funded the mortgage has been the norm for MPs of all parties for years.
Nick Clegg has said that Lib Dem MPs will in future refund such capital gains (though I’m extremely sceptical about whether it will happen in reality). But I don’t think anyone has claimed that they haven’t benefited in this way in the past.
“However I think the difference is that she asked for advice on how to do it, whereas Alexander was always not going to pay it?”
The difference is that she changed the designation of her main residence for tax purposes shortly before she sold her constituency home, in order to avoid paying CGT.
Those who proclaim themselves tax experts perhaps should look at the wording of Alexander’s press release quite closely before they leap to certain conclusions which may not be correct
“My wife and I bought our property in Elspeth Road in 1999, we sold it and moved to the current property in June 2007.
Until the spring of 2006 this was the only property we owned”
This is not quite the same as saying this was his only or main residence during the period – which automatically exmpts all of the CGT gain. Was it really Mr Alexander’s only or main residence in 2008 when he was working for the Cairngorm’s National Park??? If not you will see from the extract from the TCG Act that part of the gain would have been taxable.
223
Amount of relief .(1)
No part of a gain to which section 222 applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual’s only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period. .
(2)
Where subsection (1) above does not apply, a fraction of the gain shall not be a chargeable gain, and that fraction shall be— .
(a)
the length of the part or parts of the period of ownership during which the dwelling-house or the part of the dwelling-house was the individual’s only or main residence, but inclusive of the last 36 months of the period of ownership in any event, divided by .
(b)
the length of the period of ownership.
Apologies – Alexander worked for the CAirngorm’s NP in 2004 not 2008
So what he has done is totally legal, and in fact more strongly he hasn’t actually done anything, this is what happens by default. Which leaves the only legs to the story that some in his party (I think Jeremny Browne) have been criticial of the three-year rule as open to misuse and thought it should be reduced to six months.
The only problem with this line of attack is that it was his main home for almost all that period, and so we’re only talking about a couple of years’ gains at most.
Ok toryboyswho… missed your last comment. So at worse he might have had a different main residence for some period before June 2004 and after 1999, and that length of time would be eliglible for CGT? It’s possible but a bit thin…
toryboysnevergrowup
“Was it really Mr Alexander’s only or main residence in 2008 when he was working for the Cairngorm’s National Park???”
Obviously it would have been enough if it was his main residence.
Anyhow, no one, including the Telegraph, has suggested he should have been liable to pay CGT in respect of the period before he was elected.
To be honest, this is starting to look like a rather desperate exercise in mudslinging on your part.
Anthony
LAst time I looked the Cairngorm’s were no where near London – so it is a reasonable question.
I find your attempts at trying to say ownership of a single property amounts to it being your only or main residence a little desperate.
“and so we’re only talking about a couple of years’ gains at most.”
And so it would be ok not to tax those gains would it? This would not be a very sensible argument for the Chief Secretary to the Treasury to put forward when he is trying to increase the take from CGT would it??
toryboysnevergrowup
Actually, your suggestion about the Cairngorms is spurious anyway:
“You’ll still get the full relief if you couldn’t live in your home because you were employed and either:
you carried on all of your work or duties outside the UK
the distance from work or the requirements of your job stopped you living at home – and you were absent for less than four years”
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#2
Well there we go, case closed.
One could say that it’s all the loopholes that Lib Dems legitimately don’t like about CGT. But its because the loopholes allow people to avoid paying CGT on a second home, whereas DA’s case is that he had a home, moved (if he did, it’s just speculation) to another for one job, then chose another when he got another job (as MP). There’s obviously no attempt to play the system.
@Anthony Aloysius St
And in addition what toryboysnevergrowup omits is that HMRC’s CGT Manual states;
“When nominating which residence is to be treated as the main residence, an individual is not obliged to nominate the residence which is factually his or her main residence; they may nominate whichever residence they choose.”
before 2006 Danny Alexander only owned one property. In this situation its usual to nominate that as your main residence for CGT. Once he had bought the second property in 2006 then he could designate either as his main residence. Whatever choice he made would not give rise to a CGT liability because he sold the first property less than 3 years after he bought the first.
Alexander had an interest in two properties before 2006 – he rented one and owned the other. An interest in a property can be established by a rental agreement or a lease as well as ownership. And in order to claim that all of the gains on the London property were CGT exempt he would have had to nominate one as his main residence. Totally agree that he was entitled to nominate either – but he nominated the one which would reduce his CGT liability – this was not automatic as others have previously claimed (and now have demonstrated was a matter of nomination – their words not mine. As I said previously legal but not moral I’m afraid – particularly if you have used parlimentary expenses to carry out repoairs to you property prior to its sale.
Strangely enough I didn’t notice such an ambivalent attitude among LibDems to tax avoidance when it was performed by members of other parties.
toryboysnevergrowup
Unless I’ve missed something, we have no evidence whatsoever that he ever nominated any residence as his main one for tax purposes. Only a couple of hours ago, you were telling us that the nomination procedure didn’t exist!
It says quite a lot – both about the allegations made by the Telegraph and about you personally – that you’re reduced to making things up like this.
http://www.youtube.com/watch?v=c4EjGK2KYKY&feature=player_embedded
Listen at 1;01 – could someone explain how does claiming £2000 for a new boiler not amount to doing up your house on parlimentary expenses before selling it off at a profit now amount to moral behaviour but didn’t then. Not that any LibDem MPs were doing that sort of thing?
Anthony
Look at what Mark said – if he had interest in two properties (one through a rental agreement and one owned) he would have had to nominate one as his main residence when he claimed Private Residence Relief on the disposal in 2007. I’m not making up anything.
You continue to miss the 3 year tax relief, despite it being pointed out to you over and over. You’re proving the thoughts of many that you’re nothing but a troll, and not a very bright one at that, with your constantly shifting arguments.
“Look at what Mark said – if he had interest in two properties (one through a rental agreement and one owned) he would have had to nominate one as his main residence when he claimed Private Residence Relief on the disposal in 2007.”
That’s rubbish. The final 36 months are exempt if the property has _ever_ been your main residence.
Moreover what Mark quoted implies the direct opposite of what you’re saying: “An individual must have an interest in a dwelling house used as his residence for it to be a residence within the meaning of TCGA92/S222 [which deals with the right to nominate the main residence]. This is because relief is available on the disposal of, or of an interest in a dwelling house or part of a dwelling house”
Clearly that excludes ordinary rented property, because as a tenant you can’t make a capital gain by disposing of rented property. So he was not in a position to nominate his main residence for tax purposes until he bought a second property in 2006.
Rich
I accept that Alexander is entitled to the 3 year tax relief on the disposal of the London property, if you look closely you will see that the argument has moved on. It is clear that Alexander had an interest in two properties during the period that the capital gain arose, that it is not automatically the case that you get full tax relief for the CGT – you have to nominate the property you dispose of as your main property, otherwise the gain will be pro rated and you will not get the full exemption.
Yes of course my arguments shift. That is in the nature of taking on some of what your opponents are saying.- it would appear that only LibDems believe that they hold a monoply over truth in any argument regardless of the facts.
Perhaps I could ask you a question Rich – is it right that an MP should claim parlimentary expenses for doing up his house, for example by having a new £2000 boiler installed, and then sell it shortly thereafter pocketing a tax free capital gain?? Before you answer you may want to listen here at around1:01.
http://www.youtube.com/watch?v=c4EjGK2KYKY&feature=player_embedded
Do you want to shift your argument a little now?
From starting point, which pretty much everyone (including the Telegraph) seems to agree upon, that DA has done nothing other than conform to the tax laws as they stand, this discussion seems to have become rather fractious.
The idea that it is immoral for an MP to benefit from the tax allowances and reliefs to which the rest of the population are entitled seems rather strange. DA does not appear to have been involved in any complex or convoluted financial engineering for his own gain as much as trying to adjust his domestic circumstances to fit his new role as a constituency MP. I’d assume any MP from whichever party, needing to work effectively in two distant locations, would most likely need to do something similar.
The expenses scandal clearly exposed some dreadful practice, and it is important to ensure that this is stamped out across the parties.
But if we arrive at the position in which every expenses claim or every financial transaction in which an MP engages is treated with suspicion and portrayed in the most negative light – until such time as it can be proven not to be fraudulent – then we will be in serious trouble. MPs will decide that it is better just not to claim legitimate expenses or to forgo benefits to which they were legally entitled simply because otherwise there is a risk that they will be pilloried in the press without justification. That will lead to a terrible degradation of our political culture. Living in two locations is expensive. London is eye-wateringly expensive from the perspective of some of the provinces (hence some of the comments about the sums of money claimed by David Laws being several times annual salaries in the North East seemed rather beside the point. It isn’t a meaningful comparison.). Who would wish to serve as an MP? Only those who are independently wealthy. The last thing that we want is for a legitimate concern for probity, coupled with some parts of the press seemingly being out of control, to batter our political system back into the nineteenth century. To the detriment of us all. That is not intended as a party political point.
Anthony
The final 36 months are not in question – they count as a period of ownership in any pro-rata calculation. But if in the period prior to the 36 months there was a period when the property was not the main residence (or not nominated as such as Alexander was entitled to) then the entire gain would not be exempt from CGT.
“because as a tenant you can’t make a capital gain by disposing of rented property” – this is just not true Companies make taxable gains/losses in disposing of interests in leases all the time. An interest in property/main residence is not the same as ownership – I suspect that Alexander chose his words in the Press release very carefully in this regard.
AlexM
I have no problem with MPs benefitting from the tax reliefs and allowances to which the rest of the population are entitled. And I agree that DA did not need to engage in any complicated tax planning to get the exemptions, although he could have also placed himself in a more moral position if he wanted to.
The problem comes when they use their parlimentary allowances to do up and pay the mortgage interest on their their main residence for tax purposes, by claiming that it is their second residence for expenses purposes, and then pocket a tax free gain on their main residence for tax purposes. That is called having your cake and eating it – and is not a good position for the Chief Secretary to the Treasury to occupy. Ask Nick Clegg if you want to know where I got that idea from and he didn’t he say in the PM debatres that LibDem MPs didn’t engage in such practices?
Interesting to see how BBC coverage of the Alexander story has changed during the day. It was in the main headlines this morning but by the 6-30pm news it didn’t even feature.
And the BBC headline on their website is ”
Treasury chief Danny Alexander ‘paid home sale taxes’ and goes on to explain;
“HMRC rules state that the final three years always qualify for relief from CGT – even if the person was not living at the property – as long as it has been their only or main home at some point during the time they owned it.”
@toryboysnevergrowup “Was it really Mr Alexander’s only or main residence … when he was working for the Cairngorm’s National Park???”
He rented a property in that time – as the next line shows: “I had rented a place in Aviemore until then, we subsequently bought a place there and moved into it.”
https://www.libdemvoice.org/danny-alexander-issues-statement-on-his-capital-gains-tax-affairs-19762.html
He exploited a tax loophole to avoid CGT on Elspeth Road by designating it as his primary home for tax purposes when he sold it; but all the while was claiming expenses for it as his designated ‘second’ home.
The tax loophole is there for everyone and of course he has done nothing wrong in respect of exploiting it. However can no one here see that saying one thing about the property to benefit from the taxman and another to benefit from parliamentary expenses is wrong???
There is an attempt by many of the blog writers and posters here to suggest there is some kind of political conspiracy from the right wing media and the labour party (strange bedfellows). Of course politics will be playing its part, but this is a classic defensive strategy. It does not hide the fact that some Liberal Democrat MPs have clearly been exploiting the tax and expenses system for personal advantage (financial or otherwise). If Liberal Democrats are happy with that then so be it.
The outrage that any one dare say anything bad about the Liberal Democrats is palpable. It is also getting in the way of common sense.
@ toryboysnevergrowup
“because as a tenant you can’t make a capital gain by disposing of rented property” – this is just not true Companies make taxable gains/losses in disposing of interests in leases all the time
Absolute nonsense. The discussion is about “Private Residence Relief” which only applies to individuals and properties not to companies and land.
Companies aren’t individuals. Companies who have leased land can be liable for capital gains tax on the surrender or disposal of an existing lease and/or the grant of a new lease if a capital payment is made to them as part of the process.
Steve
“He exploited a tax loophole to avoid CGT on Elspeth Road by designating it as his primary home for tax purposes when he sold it; but all the while was claiming expenses for it as his designated ’second’ home.”
Apparently you didn’t even bother to read the article at the top of the page before writing that.
If you had, you’d have seen that the reason he didn’t pay CGT was not that he had designated his London home as his main residence for tax purposes – there’s no evidence that he ever did do that – but that it _had_ been his main residence before he was elected, and for that reason was exempt from CGT for a period of 36 months before its sale.
So he didn’t “[say] one thing about the property to benefit from the taxman and another to benefit from parliamentary expenses”.
toryboysnevergrowup
“But if in the period prior to the 36 months there was a period when the property was not the main residence (or not nominated as such as Alexander was entitled to) then the entire gain would not be exempt from CGT.”
This really is getting tedious now. We’ve already been over precisely this question.
You suggested before that if he was staying away from home in London because of his work in Scotland he would have incurred liability for CGT. I posted above this excerpt from the HMRC website that shows it isn’t true:
“You’ll still get the full relief if you couldn’t live in your home because you were employed and either:
you carried on all of your work or duties outside the UK the distance from work or the requirements of your job stopped you living at home – and you were absent for less than four years”
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#2
@Steve D
“The tax loophole is there for everyone and of course he has done nothing wrong in respect of exploiting it.”
Its not a tax loophole, its part of the rules for calculating CGT liability and its been there since the 1992 finance bill.
It was his ‘main residence’ for tax purposes until Spring 2006 because it was the only property he owned until that point. Are you suggesting he should have told the tax man that this was not his ‘main residence’ even though it was the only property he owned and met all the criteria to be declared as such? How daft would that be?
PS Not yet seen you clarify whether you used the income tax lopphole to avoid paying tax onthe first £6475 you earned in the last tax year.
@Mark Pack
You missed the bit that said “he claimed the cost of his secondary home for several months before selling it and claiming a primary home exemption”. I just wanted to include the full details.
@Anthony Aloysius St
Sorry, but he must have done at some point because from 2006 he also owned a property in Aviemore. He would have to elect one property as his main residence.
@Mark Inskip
Yes I know it is part of the rules. Rules that are open to exploitation. Simply stating they are the rules does not change the fact that people exploit them for personal benefit.
“It was his ‘main residence’ for tax purposes until Spring 2006 because it was the only property he owned until that point. Are you suggesting he should have told the tax man that this was not his ‘main residence’ even though it was the only property he owned and met all the criteria to be declared as such? How daft would that be?”
From the point that he owned two properties he would then have to elect one as his main residence. So he chose to elect Elspeth Road as his main residence, but was happy to claim parliamentary expenses on it as his ‘second’ home.
The situation is very clear and is not rocket science. No attempts at trying to “muddy the waters” will change that.
He made two decisions; one for tax purposes and the other for expenses purposes.
I’ve really no idea what point you are trying to make about personal tax allowances, so you will be waiting a while longer for any response.
Steve
We’ve already been through this at great length.
You can nominate a property as your main residence for tax purposes, but you don’t have to. There is no evidence to suggest that Danny Alexander ever so nominated his London residence.
Whether he nominated either property or none in 2006/2007, he would not have been liable to pay CGT on his London property when he sold it in 2007, because it _had_ previously been his main residence, and therefore the 36-month period before its sale was exempt from CGT.
@Steve D
From the point that he owned two properties he would then have to elect one as his main residence. So he chose to elect Elspeth Road as his main residence,
No he didn’t and didn’t to need to for CGT. When he bought is second property under CGT rules he can declare that as his main residence and still has 3 years from that point to sell the Elspeth Road property before any CGT liability arises.
Let’s assume you own one property today and you live there so its your main residence. If you buy a second property tomorrow and immediately move into that property, then you are not liabiltiy for CGT on your first property until 1st June 2013. And that’s true even if today is the last ever day you live in your first property. You can even rent out your first property if you want to.
@Anthony Aloysius St
Fine. I understand that and if he didn’t nominate (which I agree we don’t know); then given the length of time he owned Elspeth Road as his only property, it is likely of course that it would have been considered his main residence upon its sale.
So, we move from possibly a conscious decision on his part to one where it may not have been. In terms of the outcome, it is still the same. He still chose to claim the only property he actually owned until 2006 as his second home and his rented property in Aviemore (then his owned property from 2006) as his main residence for parliamentary expenses. Perhaps Elspeth Road was more expensive to run than his rented property, who knows. Maybe he did it for the best of intentions, maybe he did it to maximise his expenses claim?
I think it is stretching credibility to believe he would not be fully aware of the tax implications and expenses rules. If he wasn’t, then it doesn’t bode well for his capacity to be chief secretary to the treasury, does it?
@ Steve D
I’ve really no idea what point you are trying to make about personal tax allowances, so you will be waiting a while longer for any response.
You had claimed the 36 month rule was a loophole whereas its simply one of the rules by which CGT liability is calculated. Its no more of a loophole than you not being liable for income tax on the first £6475 of your earnings.
I could claim “Steve D uses personal allowance loophole to avoid paying income tax on his first £6475”, of course its a non-story but so is Danny Alexander ‘avoiding’ CGT.
Steve D
The point is that the CGT position regarding the 2007 sale was absolutely unaffected by anything that took place after he was elected. In that sense there were no “tax implications” of his place of residence.
As for why he specified his constituency home as his main residence for parliamentary purposes, he did address that point in his statement:
“I have always listed London as my second home on the basis set out in the parliamentary rules as I spent more time in Scotland than I did in London.”
Alex (different one): not missed that, but rather (as post goes on to touch on) it’s a misleading way of putting it. The point isn’t what is home was at time he sold it, but what is home was up to three years before he sold is – as that’s what the capital gains tax rules tell you to look at.
@Mark Inskip
Fine. But the issue here is that he was living in both properties; so there would either have needed to be a decision to nominate, or for the facts regarding main residency to speak for themselves regarding CGT upon disposal of Elspeth Road. We don’t know if he made a nomination or not. The question still remains as to why he chose a property he owned as his second home, rather than one he rented for the purpose of parliamentary expenses?
The end result is still the same. The taxpayer has paid money into a ‘second’ home to purchase and maintain it, that home has then been sold (presumably at a profit) and no CGT has been paid since it was his main residence all along. So, the same home is being classed as one thing for his expenses and another for tax.
Seems pretty clear to me that there is something wrong with that.
@toryboysnevergrowup
“Alexander had an interest in two properties before 2006 – he rented one and owned the other. An interest in a property can be established by a rental agreement or a lease as well as ownership. And in order to claim that all of the gains on the London property were CGT exempt he would have had to nominate one as his main residence. ”
No, a lease of this kind (I’m assuming this is a standard short-term tenancy agreement as is usual for rented properties) isn’t relevant for the purposes of the principal private residence rules, because it isn’t an asset. People who live in rented properties don’t buy them when they move in or sell them when they move out, do they. The kind of leases you’re talking about companies disposing of with a gain are leasehold ownership titles carved out of a freehold (and can run into hundreds of years).
Steve D
As I’ve explained to you several times, the reason that he wasn’t liable for CGT when he sold the London property in 2007 was that it _had_ been his main residence before he was elected. Nothing he did after he was elected could have changed that.
If you’re saying you think he did something wrong, you’d really ought to explain what.
@Steve D
“So, the same home is being classed as one thing for his expenses and another for tax. Seems pretty clear to me that there is something wrong with that.”
No, this isn’t correct. As far as I understand it he was using the three-year backdating rule on the property he sold. He wasn’t claiming it was his PPR at the point of sale.
Alix,
I think you mean an Assured Shorthold Tenancy, though I am not sure they exist in Scotland. I don’t think anyone has made a profit out of an AST since the Housing Act 1988 (?) brought them in. On the contrary, one makes a thumping great loss!
On the issue of liability to pay tax, no-one is required to organise his/her tax affairs for the convenience of the taxman. Tax avoidance isn’t illegal, it isn’t even wrong. And most of us do it at some time in our lives.
What about those Labour cabinet ministers who bunged their shares into discretionary trusts while they held office and paid no tax on the income? Perfectly legal, obviously. And not immoral either. But breathtakingly hypocritical for any one of them to point an accusing finger at someone who arranges his/her financial affairs in a tax-efficient way.
We ripped Kitty Ussher to bits in Burnley for doing much the same thing:
a) owning and living in a house for ages
b) getting elected
c) switching main home to somewhere else
d) using public money to do the first house up
The only difference with Kitty Ussher was that once the house was done up, she switched it back to her main home.
Danny Alexander appears to have sold his and kept the profit.
This is nothing to do with CGT. It’s an abuse of taxpayer’s money for private gain.
I’m sick of MPs taking the rest of the population for mugs. We’re supposed to be in a period of “new politics”. Could any more MPs that have yet to be exposed please make themselves known now? Step down BEFORE you get found out and leave with a modicum of honour.
@Steve D
The question still remains as to why he chose a property he owned as his second home, rather than one he rented for the purpose of parliamentary expenses?
That one’s easy, it in his statement where he says that its “on the basis set out in the parliamentary rules as I spent more time in Scotland than I did in London.”
Another example of Danny Alexander obeys the rules.
Incidentally, when I was working in tax it was accepted that the three-year period could be invoked by a period of demonstable “residence” for as little as a month! People who owned multiple properties, and who hadn’t lived in a given property for years, would be advised to demonstrate by means of a barrage of utility bills etc that it had become their main residence, before moving back out of it again a few months later. This bought them three years of gain-free appreciation provided they sold within that period.
When people talk about “exploiting tax rules”, that is what they mean in the context of the PPR rules. This is why people get het up about avoidance “loopholes” (and why, for all our good intentions, it’s very difficult to legislate them out). Danny Alexander, on the other hand, has used the rules not only correctly, but actually as their drafters envisaged.
@Sesenco – that’s the one. There is a direct Scottish equivalent, I’m fairly sure, but I can’t remember the exact name.
@Anthony Aloysius St
I know the reasons why he wasn’t liable for CGT on the London property and it wasn’t as a result of you telling me several times. It was as a result of the fact that I understand the rules relating to CGT. We have established a fair point which is that I assumed he made a nomination regarding Elspeth Road, he may not have done so. For the purposes of CGT it is very clear that Elspeth Road would have been considered his main residence.
@Mark Inskip
I can’t see anywhere in the Green Book where it provides advice on how to decide on your main residence. That is not to say such advice does not exist.
“Whether he nominated either property or none in 2006/2007, he would not have been liable to pay CGT on his London property when he sold it in 2007, because it _had_ previously been his main residence, and therefore the 36-month period before its sale was exempt from CGT.”
This is just not correct – the way the calculation works is not that the 36 month period is exempt from VAT – it is treated as a period of occupation – the proportion of the total period which is occupied is then what you receive private residence relief for. If you have a property that is not your main residence for the period in which the chargeable gain, or you have not decided to nominate the residence being disposed of as your main property for the entire period, then you will suffer tax (DA was entitled to do this – and given that no CGT liability arose my guess is that he did)
This is what the HMRC guidance says
“If the dwelling house has not always been your only or main residence, you
will need to split the gain. When calculating the proportion of the gain
eligible for relief, you multiply the gain by a fraction equal to the periods of
occupation (including the final 36 months where appropriate) divided by the
period of ownership (both periods starting at 31 March 1982 if the house
was owned before that date). You do not introduce valuations of the
properties at the dates of changes of use.”
Your main residence is not defined by whether you own it or not – it depends on whether you have an interest in it – this can be through a rental agreement or a lease. I pointed out that interests and ownership differ for companies by way of example – it does not mean that the example is not also of relevance to individuals as some have assumed. I defy anyone to show me where the HMRC guidance/law it says that ownership and an interest in property are the same thing.
Before any one gets too confident in suggesting that DA couldn’t have rearranged his tax affairs so that he did the moral thing and paid CGT on his 2nd parlimentary residence – perhaps they should remember that Hazel Blears managed to do so when the error of her ways was pointed out to her. I sure there are LibDem accountants who could offer similar advice to DA.
And I wonder where DA claimed his main home was when campaigning for election in 2005??? Just a guess but I somehow doubt that it was in London – perhaps others can provide evidence one way or another?
I doubt you’ll post this, but be aware that a huge swathe of th epublic have spotted the error in your argument. You focus on the legality issue. This was NEVER the issue, whether it pertained to MPs expenses or property flipping. The issue was one of ethics. And for Liberal Democrats it was one of the ethical position AS ESPOUSED BY NICK CLEGG.
Nick Clegg’s speech at Liberal Democrat manifesto launch, Wed, 14 Apr 2010: – “And you will once again be able to look at our Parliament with pride, not contempt, because we will make sure every MP who avoided capital gains tax or flipped their home for personal gain is brought to book.”
Or this from Lewisham West & Penge Libdems site:
“Home-flipping MPs should pay back money – Clegg
Lib Dem leader Nick Clegg has demanded that MPs who “flipped” homes or avoided capital gains tax pay back the money and be punished. Both practices were heavily criticised during the expenses scandal but have not been addressed by the parliamentary inquiry.
In an article in the Daily Telegraph (the newspaper that originally broke the MPs’ expenses scandal), Clegg observed that “most people expected the worst offences to come under the toughest scrutiny – MPs who avoided Capital Gains Tax, claimed cash for mortgages that didn’t exist or ‘flipped’ their second home so they could claim for renovations on house after house.”
But the parliamentary review into MPs expenses has not addressed any of these matters.
“Every single MP who flipped, avoided Capital Gains Tax or claimed for non-existent mortgages must be forced to repay the money, and held to account.”
So, let’s examine Alexander’s behaviour in light of these standards.
1 ) Flipping
What exactly is wrong with flipping? Well, there are two aspects. Firstly, flipping is wrong for MPs because they can use expenses – from the taxpayer – to renovate a home, sell it on, and pocket the renovation premium. Here’s what the Telegraph investigations have uncovered:
“[Alexander] claimed more than £37,000 in expenses for the flat, and carried out some work to the property at the taxpayers’ expense shortly before selling in June 2007. ”
So it’s pretty clear that Alexander has taken advantage of the taxpayer to inflate the value of his home prior to selling, so that’s a yes to that aspect of flipping.
What’s the other negative aspect of flipping? The other negative aspect relates to tax avoidance through exploitation of the 36 month rule. Note the word : avoidance. Avoidance is not illegal (contrast with evasion). But “avoidance” was the word used by Nick Clegg with seriously neagtive connotations. Remember, Nick said those who avoided cgt should “pay back the money and be punished”. Clearly, Alexander has thumbed his nose at Nick once more in this regard.
2 ) Avoiding Tax
Well, we’ve already covered this in “Flipping”. Clearly Alexander has avoided cgt. He may not have “evaded” tax (illegal), but he has certainly made a mockery of Nick Clegg’s “fairness” mantra and his manifesto launch speech (and remeber, Alexander wrote the manifesto). The fact that Alexander has disposed of the London home within the 36 months might satisfy some, but to others, this just looks like another way to avoid tax, and Nick Clegg clearly appreciated that.
3 ) Benefitting from Renovation Expenses
Again, this has been covered in “Flipping”. Alexander chose to renovate with taxpayer’s money just prior to selling up.It simply looks mucky.
And there’s one further aspect that makes it look even worse, namely, that Alexander called London his 2nd home for expense purposes. You have to remember that writing workable tax laws is not straight forward. Ideally anyone with a second home would pay cgt on its disposal. However, for the sake of fairness, the exchequer has to recognise that a party may move, yet be unable to dispose of their original property. That is the real, ethical, base for the 36 month rule. It is not there to allow flippers to pay zero cgt. Neither is it there to allow MPs to avoid tax and claim expenses by muddying the designation of their principal primary residence. Again, Alexander has shown no respect for the spirit of the law.
So, what Alexander has done may well be legal, but at the same time it also flies in the face of the standards esposed by his leader. The conclusion is simple: either Alexander should step dowm, or Nick Clegg should for allowing his own manifesto pledges to be trashed.
@Stray
– Exactly.
Connor Morrow wrote:
“Again, Alexander has shown no respect for the spirit of the law.”
Wrong, Connor Morrow. Danny Alexander has OBEYED the law. That is all anyone is required to do. Quite how one shows respect for the spirit of the law, whatever that may be, I have no way of knowing. Thankfully, we are governed by law in this country, not by newspaper editors equipped with portable palm trees.
I see it’s The Heil taking over the baton: http://www.dailymail.co.uk/news/article-1282993/Treasury-minister-Danny-Alexander-wifes-62-freebie-trips-taxpayer.html
Perhaps someone might like to deal with this nonsense, too…
And some more dirt from The Heil here: http://www.dailymail.co.uk/news/article-1282734/David-Laws-exit-wont-derail-government-plans-tackle-economic-crisis.html
toryboysnevergrowup
“This is just not correct – the way the calculation works is not that the 36 month period is exempt from VAT – it is treated as a period of occupation – the proportion of the total period which is occupied is then what you receive private residence relief for.”
In other words, the final 36 months is exempt from Capital Gains Tax (not VAT!), exactly as I said.
As for the rest of what you posted, it’s entirely irrelevant. The sale in 2007 would have been exempt from CGT, no matter what actions Danny Alexander might have taken after his election.
Steve
“We have established a fair point which is that I assumed he made a nomination regarding Elspeth Road, he may not have done so. For the purposes of CGT it is very clear that Elspeth Road would have been considered his main residence.”
Actually, we’ve established that you were talking absolute nonsense when you claimed above that “He exploited a tax loophole to avoid CGT on Elspeth Road by designating it as his primary home for tax purposes when he sold it”.
And I don’t know how many times it must be repeated before it penetrates – but for the purposes of CGT the only thing that mattered was that it _had_ been his main residence in the past. Whether it was “considered his main residence” when he sold it was completely irrelevant.
Anyhow, I’ll repeat the question you’ve left unanswered. You seem to be suggesting that Danny Alexander somehow behaved improperly. Granted that whatever he did the sale of his London property in 2007 would have been exempt from CGT, what exactly are you saying he should have done differently?
Steve, Toryboys,
I haven’t time to try to make sense of this one, but I would just note something about this thread.
Just for once, Anthony Aloysius is defending a Lib Dem party member accused of dubious practice. That is rather unusual. If you read the Laws threads and earlier expenses threads you will see that Anthony is one of a brave minority of Lib Dems who do not defend their party “right or wrong”. Like myself (but with greater technical knowledge), he believes we must always condemn those who break the rules.
So why is he taking Danny Alexander’s side this time? I think it must be because this time round, the accusations are in fact baseless, and it is equally important not to go witch-hunting when there is no actual fault.
@Anthony Aloysius St
I’m not going down the route of having you lecture and patronise me again.
We don’t know if he chose to designate Elspeth Road or not; unless we know that we don’t know it’s nonsense to say he did. I’ve already admitted that I assumed he had, but accept he may not have done.
Have_I_said_he_did_anything_wrong_regarding_CGT? It’s clear that Elspeth Road is exempt under the rules. Although the rules here were meant to help people having difficulty selling, not to simply avoid CGT.
He might at least have considered the contradiction of using the same home in different ways for tax and expenses purposes. I’m sure that he would have taken these financial matters seriously enough to be aware of all the implications and benefits available.
What I find difficult to understand is why people here believe it is acceptable to use the same residence as a ‘second’ home in order to claim parliamentary expenses. Initially it was his only owned property. So it was ok for him to take taxpayers money for it whilst he was renting; and then to do it up and sell it after he had brought his new property in Aviemore.
He claimed £37,000. If that is averaged out over 2 years (elected in 2005 – sold in 2007) he claimed just over £1500 per month, for a residence he says he hardly ever lived in. The purpose of the expense is to pay for overnight stay costs relating to parliamentary or constituency business. It begs the question of whether this is really a reasonable use of the expense and good/fair value.
It is clear to me that he used the rules relating to CGT and Parliamentary expenses to maximise personal financial gain. I’m sorry if others don’t see that and/or find it acceptable. At the very least he has fallen foul of the following fundamental principle from the Green Book:
“Members must ensure that claims do not give rise to, or give the appearance of giving rise to, an improper personal financial benefit to themselves or anyone else.”
I will only end up going round in circles with you and I have better things to do.
Anthony
Just because the last 36 months is treated as a period in occupation it does not mean that the entire preceding period is automatically treated as such and therefore that there is no CGT liability.
David
You will see that I tok David Laws side even though I cannot stand his politics – and I am quite prepared to be critical of the behaviour of those such as Hazel Blears and Kitty Ussher, who like DA acted within the law when it came to their CGT liabilities, but I still did not behave properly/morally (IMO) in their use of the parlimentary expenses, and could have engineered their affairs to have made sure that they paid CGT on their 2nd homes (which is something that Nick Clegg promised – but we are now being told by Anthony is not possible in this case)
TBNGU, do you not mean Alexander and CGT?
@Steve D
You originally claimed “He avoided CGT on his ’second’ home by using the 36 month loophole to tell HM Customs and Excise it was his primary residence; whilst at the same time claiming expenses on it as his second home.” and you claimed He exploited loopholes in the Tax system.
Elspeth Road only became his second home for parliamentary expenses in 2005 when Danny Alexander was first elected. For CGT purposes if it was his main residence up until his election in 2005 then a sale in 2007 would not have given any liability for CGT under standard HRMC rules. No need to use any loopholes.
As Francis Maude, the Cabinet Office Minister and Paymaster General, said yesterday “He didn’t do anything, as far as I can see, in order to avoid paying tax. He did a normal transaction, which was not taxable. So the idea that this is using a loophole seems to me to be nonsense.”
Its pretty obvious from the evidence and even from your own most recent posts that both allegations you originally made are not true.
Sesenco wrote :
” Quite how one shows respect for the spirit of the law,
whatever that may be, I have no way of knowing.”
Well, let me quote you from that defender of bleeding hearts, The Guardian:
“The change [36 month rule for cgt] was introduced to give sellers time to
find a buyer for their property during a downturn in the housing market.”
Let me spell out what this means: the cgt rule is NOT intended to allow 2nd home owners a chance to flip property without paying capital gains tax, merely by the act of legendermain we call “designation”. It was meant to allow ordinary SINGLE home owners to move house without having the government steel a slice of their equity – period.
So how do I know Alexander has not used the 36 month rule for purposes other than that described above, and therefore used the rule to AVOID tax? Simple. In Alexander’s own words:
“My wife and I bought our property in Elspeth Road in 1999, we
sold it and moved to the current property in June 2007.
Until the spring of 2006 this was the only property we owned.”
In other words he had TWO homes at the time of the Elspeth disposal, and he went on to REPLACE his London home after the disposal. This is NOT about single home ownership and thereofre using the 36 month rule, is, in the words of your own party, “morally dubious”.
@Connor Morrow
“Well, let me quote you from that defender of bleeding hearts, The Guardian:”
The Guardian quote is lifted word for word from the Telegraph article. The Guardian also describes this as a tax loophole (in line with the Telegraph story) yet anyone familiar will CGT will know that this is a long standing CGT rule. Both make the claim that this was a fairly recent change to the CGT rules. Well I’ve so far go back as far as 1992 and the rule was still in place then so its nonsense to claim its a recent change. It easily pre-dates the last substantial change to CGT rules in 1998. Its also clear that no ‘flipping’ was involved or necessary.
@Mark Inskip
Again, the rules here are to help with difficulty in selling a property, not to avoid paying CGT. He lived in both residences he owned until the point of selling Elspeth Road. If he did not nominate Elspeth Road at the point he owned 2 properties; it is possible it would have been considered his main residence when sold. We don’t know that for certain.
You know as well as I do that the 36 month rule and main residence status is exploited, no matter how many times you tell me it is the ‘rules’. In this case he had another property for over a year before selling Elspeth Road. A property which by his own admission he spent more time in. During the time he owned both properties the taxpayer paid his mortgage interest and for maintenance and repairs on Elspeth Road.
So, we are left in the situation where you claim he acted perfectly within the tax and parliamentary expenses rules.
However it is still the case that the same residence was treated differently for Tax and for Parliamentary Expenses. Even if everything was technically within the rules, I still don’t understand why people here cannot see the contradiction. Furthermore some of the claims made would have enhanced or protected the value of the property in Elspeth Road.
Why should taxpayers money be used in this way? The purpose of the expense here is to compensate for overnight stays in respect to parliamentary or constituency business. It is not there to help someone purchase a house, maintain and repair it and then profit from the sale. The fact that he also did not have to pay CGT simply adds to the cheek of it.
Worse still, we are now paying twice the amount in mortgage interest on his new property. What was so wrong with Elspeth Road that he couldn’t continue to use it for overnight stays in respect of parliamentary business?
Financially this is a win, win, win for him. No CGT, profit from the sale of Elspeth Road (partly paid for and maintained by the taxpayer), and double the amount of interest payments from the taxpayer on his new home in London.
This is a man thought capable of being chief secretary to the treasury. It stretches credibility to believe that he wasn’t fully aware of what he was doing.
Anyway, we are never going to agree. If you and others simply want to say I’m wrong that’s fine by me. You can place your interpretation on this and I will place mine.
Connor Morrow,
Unadulterated codswallop. The court will only inquire into the reason why a particular statute was enacted if the literal meaning leads to an absurdity. The literal meaning of the tax rule in question is clear. If one’s principal residence ceases to be one’s principal residence, one is not liable to pay CGT on profits made from its sale if one sells within 36 months. Ergo, the reason why the rule was enacted is of the utmost irrelevance.
Like the NSDAP, the Communist Party of the Soviet Union and the tobacco industry before them, these trolls will go on repeating the same old lies, long after they have been exposed as such, in the hope that with continued repetition they will come to be accepted as the truth. That is their tactic.
@Steve D
There is no contradiction. Given that he sold the Elspeth Road property in 2007 then it only needed to be his ‘main residence’ in 2004 (3 years earlier) for there to be no CGT liability. Given he only owned one property in 2004 and wasn’t an MP in 2004 (so wasn’t designating a second home for parliamentary expenses in 2004) where’s the contradiction?
An interesting question:
As has been pointed out if a person works away from their main home, as DA would appear to have done when he was with the Cairngorm NP, then such a period of absence is not required to count as a period of non occupation of the main residence for CGT purposes. However, such a saving is conditional on the person occupying the main residence both before and after the period working away from home. So does this mean that in order to avoid a CGT liability in respect of his period while working away from his main residence, that DA had in effect reoccupied his London Property as his main residence when he returned from Scotland – presumably after his election as an MP?
If he did this would mean that while an MP his London property was his main residence for tax purposes and his second residence for expenses. It would appear that DA was appointed to the Cairngorms NP before the start of the 36 month period as he is minuted as attending its meetings as Head of Communications in February 2004.
@Mark Inskip
The contradiction is that since he became an MP in 2005 he used the Elspeth Road address as a second home to claim expenses on it.
@toryboysnevergrowup
“Your main residence is not defined by whether you own it or not – it depends on whether you have an interest in it – this can be through a rental agreement or a lease. I pointed out that interests and ownership differ for companies by way of example ”
I don’t know whether you just missed my comment? You cannot make a capital gain on a shorthold tenancy agreement. A rental property under those terms is not an asset. I am making, I think, the reasonable assumption that Alexander’s property was rented on those terms, like the majority of rentals in the UK. If you know any different, let’s hear it. The interest you acquire by taking out a STA does not count for the purposes of the PPR relief, because the relief only exists in the context of rules on capital gains from the sale of assets. Otherwise, logically, a holiday cottage would also count as an interest to be considered in the context of applying the PPR rules.
When s 222 talks of “interest” it is intended to take in a wide field of legal constructs which would indeed include a leasehold property. But “leasehold property” is not the same thing as “rented property”, where the latter is held on an STA (or Scottish equivalent). You are eliding the two.
@Steve D
“I will only end up going round in circles with you”
… perhaps because your arguments are circular.
” I have better things to do.”
Why don’t you take your own advice and do something more profitable?
Alix
I am not sure whether or not non ownership interests give rise to CGT or not is really the point (as you point out some will and some won’t). All I’m saying is that if someone has an interest in another property i.e through renting it when working away from home – then this could lead to a period when the main property is not being occupied and therefore does not qualify for full private residence relief. This would appear to be the position in the HMRC guidance which gies examples of such situations, and which make clear that the exmptions for working away from home are only met if certain conditions are met – including that the main residence is returned to afterwards.
@Paul McKeown
My arguments relating to Danny Alexanders’ expenses are not circular and in any case the comment was not directed at you.
It was specifically directed at Anthony who has a clear track record in these matters; not reading what I actually say; presenting it as something else; and then criticising me in holier than thou tones. What becomes circular is me having to correct him every time he does this; for him to only go and do the same thing in the very next post.
I’m sure at some point he will post back here that this is not the case with some selective quote from me, and bemoan it is not his intention etc. etc. and that I should be careful not to bandy around criticisms of him. However there are other threads here which clearly show the way in which he tries to engage me. I was simply pointing out to him that I will not engage with him in that way this time.
If you, Anthony and others here want me to run along and leave you all to play in your own playground, that’s fine.
I do actually care about the issues I post on here, because I am concerned at the direction the Liberal Democrat Party is going in. It is wrong to assume I am anti Lib Dem in some way.
On this particular issue, I have accepted my initial comments were based on certain assumptions which may not be the case. I have also accepted that he appears to have done everything technically within the rules. I do not share some of the more nasty and vitriolic views of some other posters here. What I do find difficult to accept is that there seems to be a view that it is either black or white in this case. For me it falls very much into the gray area in between. So the two extremes of divine innocence and devilish guilt, just don’t cut it for me.
It is possible to change or develop views/opinions during these discussions and I do that where I have been persuaded by the arguments. There is a tendency here to believe everything is either right or wrong and a desire to hound posters until they admit their ‘errors’ and/or to tell them to go away.
This story is in the same edition of the Telegraph that campaigns for more loophoples for Capital Gains Tax payers, including CGT on any gians made by owners of second homes.
The message seems to be, it’s OK lawfully to avoid CGT, unless you’re a newly appointed Lib Dem Cheif Secretary of the Treasury. Or anyone else we don’t like.
Steve D
Actually, I leaned over backwards on the other thread to give you the benefit of the doubt.
I’m sorry, but I’m not going to do that again. When you post nonsense here, expect to have it pointed out forcibly. And if you then try to blur the issue, expect to have it made crystal clear.
@Anthony Aloysius St
And you can expect me to continue pointing out when you are being an obnoxious and patronising bully. Referring to your comment below:
“And I don’t know how many times it must be repeated before it penetrates – but for the purposes of CGT the only thing that mattered was that it _had_ been his main residence in the past. Whether it was “considered his main residence” when he sold it was completely irrelevant.
I wonder when it will penetrate with you that it does matter, since he was living in both residences for a period of time. He had not left Elspeth Road empty or rented it out. So it is nonsense of you to say it is completely irrelevant.
Steve D
Sorry to be blunt, but what you need to do is stop whining about people “bullying” you when they point out you’ve got your facts wrong, and make the effort to get a rudimentary acquaintance with the relevant facts so that you don’t post quite so much nonsense.
Having said that, judging from your latest comment, I wonder whether it would help.
In the simplest terms I can manage – any property is exempt from CGT in relation to the last 3 years before you sell it, provided it has at some time been your main residence. It doesn’t have to be your main residence at the time you sell it. It’s enough that it has been your main residence at some time.
So, just one more time. Not necessarily at the time you sell it. It’s OK if it was at any time.
Would it help if I repeated it a few more times?
@Anthony Aloysius St
Read the rules instead of lecturing me.
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#5
The three year rule relating to private residence relief states:
The final three years (36 months) always qualify for relief, even if you weren’t living there, as long as it’s been your only or main home at some point during the time that you’ve owned it.
Regarding second homes it states:
If you live in – not just own – more than one property you can write to your Tax Office to tell them which one you want to choose – or ‘nominate as’ – your main home. See the link below if you’re not sure where your Tax Office is.
If you wish to make a choice – or ‘nomination’ – it must be made within two years of changing the number of properties you live in.
For example, you buy a second home in May 2009, you can nominate either this or your usual home as your main home, but you must do so by May 2011.
If you don’t tell your Tax Office which property you want them to treat as your main home, the one that’s treated as your main home will be decided on the facts. This may affect the amount of Capital Gains Tax you have to pay.
So it is not as clear cut as you continue to suggest. There would have been an opportunity for him to elect to nominate either property. However I have already agreed a number of times prior to your post on 1st June at 12.51am, that I accept Elspeth Road probably would not have been liable for CGT based on the facts of ownership, and that I was wrong to assume he did make a nomination.
I had already agreed that my original comments were incorrect on those two points, but like in other threads here that is never enough for you. You continue to want to rub peoples noses in things; almost like the dog owner rubbing his dogs’ nose in the shit to let him know what a naughty boy he’s been and telling him not to do it again.
You may believe everything in life is either ‘right’ or ‘wrong’ and that the merest possibility there might be a grey area between the two is simply blurring the issue; I do not.
The facts in this case are not as clear cut as you would like them to be and go beyond just the issue of CGT.
Steve D: as you say, you qualify for the 36 months exemption if a property was “your only or main home at some point during the time that you’ve owned it”. So let’s take late 1999 as an example: a few months after Danny Alexander and his wife had purchased the property and five and a half years before he became an MP. At the that time it was the only property they owned. At the time Danny Alexander worked for a London-based organisation.
So what’s your reason for not simply saying, “Ah, of course – it was his main home then, therefore it was his main home at some point during his ownership of it, therefore he qualified for the 36 months relief”?
Steve D
“So it is not as clear cut as you continue to suggest.”
It _is_ absolutely clear-cut, and extremely simple. The property had been his main residence in the past. Therefore it was exempt from CGT for the last 36 months before the sale. That is _regardless_ of anything that happened after he was elected to parliament.
You must realise that by now. So why are you continuing to claim otherwise?
@Mark Pack & Anthony Aloysius St
I’m not claiming his London flat was not exempt, or that it was never his only or main home. I’ve said that several times now and say so again. I apologise for getting it wrong in the first place. The only point I was making is that he could have designated his new home in Aviemore as his main residence if he wanted to. Instead he continued on the basis that the London Flat was his main residence whilst claiming expenses on it from parliament as his second home. I get the fact that he has done nothing wrong regarding CGT, however other issues still arise. As I’ve said before:
“Initially it was his only owned property. So it was ok for him to take taxpayers money for it whilst he was renting; and then to do it up and sell it after he had brought his new property in Aviemore.
He claimed £37,000. If that is averaged out over 2 years (elected in 2005 – sold in 2007) he claimed just over £1500 per month, for a residence he says he hardly ever lived in. The purpose of the expense is to pay for overnight stay costs relating to parliamentary or constituency business. It begs the question of whether this is really a reasonable use of the expense and good/fair value.”
And:
“The purpose of the expense here is to compensate for overnight stays in respect to parliamentary or constituency business. It is not there to help someone purchase a house, maintain and repair it and then profit from the sale. The fact that he also did not have to pay CGT simply adds to the cheek of it.
Worse still, we are now paying twice the amount in mortgage interest on his new property. What was so wrong with Elspeth Road that he couldn’t continue to use it for overnight stays in respect of parliamentary business?
Financially this is a win, win, win for him. No CGT, profit from the sale of Elspeth Road (partly paid for and maintained by the taxpayer), and double the amount of interest payments from the taxpayer on his new home in London.”
When I’ve got something wrong and admit I’ve got something wrong; I don’t see why I should put up with other people hounding me. This is what I object to:
Posted 31st May 2010 at 10:51 pm | Permalink
@Anthony Aloysius St
I know the reasons why he wasn’t liable for CGT on the London property and it wasn’t as a result of you telling me several times. It was as a result of the fact that I understand the rules relating to CGT. We have established a fair point which is that I assumed he made a nomination regarding Elspeth Road, he may not have done so. For the purposes of CGT it is very clear that Elspeth Road would have been considered his main residence.
In reply I get the following:
Posted 1st June 2010 at 12:51 am | Permalink
Steve
“We have established a fair point which is that I assumed he made a nomination regarding Elspeth Road, he may not have done so. For the purposes of CGT it is very clear that Elspeth Road would have been considered his main residence.”
Actually, we’ve established that you were talking absolute nonsense when you claimed above that “He exploited a tax loophole to avoid CGT on Elspeth Road by designating it as his primary home for tax purposes when he sold it”.
And I don’t know how many times it must be repeated before it penetrates – but for the purposes of CGT the only thing that mattered was that it _had_ been his main residence in the past. Whether it was “considered his main residence” when he sold it was completely irrelevant.
Anyhow, I’ll repeat the question you’ve left unanswered. You seem to be suggesting that Danny Alexander somehow behaved improperly. Granted that whatever he did the sale of his London property in 2007 would have been exempt from CGT, what exactly are you saying he should have done differently?
So I admit I got something wrong, but that is not good enough for some people.
Steve: ah, thanks. I hadn’t appreciated that was your (revised) view of the CGT issue.
@Mark Pack
I will admit to rushing in a bit with my initial post. Having done that I did look into the issues around CGT further and realised I had made an error. Although reading up on the rules makes me glad I’m not an accountant!
For the record, if Danny Alexander has done anything ‘wrong’, he is certainly not anywhere near the worst of offenders. He clearly shouldn’t have to resign or pay anything back. As with much of this mess over expenses it is the system in the past that was the problem; although unfortunately plenty of MPs were happy to exploit it.
I also understand the desire to protect and defend Liberal Democrat MPs. There is clearly an onslaught against the party at the moment; making for some very strange bedfellows. Not that two wrongs make a right, but I don’t think Nick Clegg helped the situation with his expenses comments during the Leaders debates.
I think that there is a lot of ‘quick to defend’ and ‘quick to judge’ commenting going on, myself included in this case.
It is not my intention to clash with other contributors here. I’m not a troll and even if it seems like it sometimes, it is not my intention to annoy everyone here.
As I’ve said before, I have voted Liberal Democrat in previous General Elections and did so in local elections this time. Funnily enough the reason I moved away from the Liberal Democrats is precisely because this coalition with the Conservative Party sits very comfortably with the current Leadership.
I came here originally to engage on the issue of the 55% proposal and have stuck around as other events unfolded.
“The only point I was making is that he could have designated his new home in Aviemore as his main residence if he wanted to. Instead he continued on the basis that the London Flat was his main residence whilst claiming expenses on it from parliament as his second home.”
But that point is utterly spurious. You say “he continued on the basis that the London Flat was his main residence”. But on the contrary, what he has said is “I have always listed London as my second home on the basis set out in the parliamentary rules as I spent more time in Scotland than I did in London.” There is absolutely no evidence to the contrary, as far as I have seen. (As has been pointed out to you over and over again, the fact that he paid no CGT when he sold his London flat tells us absolutely nothing about anything that happened after he was elected.)
You are flinging about quite serious accusations without a shred of evidence, and on the basis of an extremely tenuous grasp of the facts. And you seem to resent it when people set you straight. I’m sorry, but I think you’d better get used to it.
@Anthony Aloysius St
Do you actually read my posts, or just pick up on bits you can misrepresent for your own twisted benefit?
It is not a spurious point to say that he could have made a nomination at the point he owned both properties, if he had wanted to. That is clear from the rules. It is not a spurious point to say that a property which rightly (as I’ve now admitted countless times) did not attract CGT, was being treated as a second home for parliamentary expenses.
All you are doing is quoting part of a paragraph back at me, taking it out of context, in an attempt to ‘set me straight’.
What I resent is that despite the fact that I have repeatedly now accepted that he did nothing wrong regarding CGT, you still want to keep having a go at me for doing so in the first place.
You seem to have great difficulty in grasping the fact that some people will admit when they have got something wrong, as I have done; but do not appreciate attempts to continually ‘set them straight’ over a point they have already conceded.
It is clear to me that you have a different agenda to just setting people straight. I think you resent being challenged when you try to bully people here. Perhaps you should get used to it.