Blearsy-eyed!

We read here that Hazel Blears is to pay £13,332 on the sale of a second home. How is she going to do this? Presumably her accountants or tax advisers got the documentation right so that she successfully avoided a liability by making the appropriate election. The only way she can get HMRC to accept the money is by saying she made an error or worse, deliberately misled them. She will not be happy if they charge interest and penalties in addition to the CGT.

Perhaps she thinks the way to pay this voluntary tax is to just send a cheque. If HMRC cannot match the amount paid against a current liability, they will want to just send the money back. Remember that following the change in treatment of offshore income received by non-domiciled residents in UK, advisers on US tax told their UK resident clients that they should pay their tax due in the UK on US and worldwide income received in the period 6th April to 31st December 2008 before the end of December 2008 so as to have it matched with and set off against US tax due for 2008. The problem with this was that UK tax would not have become due before 31st January 2010, and HMRC's reaction was to try to repay the tax, thus defeating the object. Does Hazel know something we don't, or is this just political expediency without worrying about the consequences? I can guess, but answers on a post card please.

Update 14th May

Hazel Blears might have read my blog yesterday! I heard on BBC radio this morning that because HMRC would not be able to accept a cheque if they could not allocate it to a known liability (given that she has done nothing that she was not legally permitted to do), an official from HMRC was summoned to Westminster last night to accept the £13,332 on behalf of the Public Purse. I think it might have been better used if paid to a charity for the homeless. This is gesture politics at its worst, and really, you couldn't make it up, could you?

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Property flipping and knee jerk reactions

I must admit that the publicity about some Members of Parliament with two or more residences changing their designated main residence to one they are about to sell has me a little concerned because of all the publicity around it, and because of the public's ire. The principal residence capital gains exemption is there for good reason, and whilst as with any rule it might be possible to exploit it to one's advantage, the main purpose of electing as to which is the main residence is actually to prevent hardship or difficulty. Often people acquire a second property through the necessity, perhaps related to a job or through inheritance, and electing as to which property is the main residence avoids unnecessary debate with HM Revenue & Customs at a later date. If a large family home were to be treated inadvertently as the second property, then upon moving, a large tax bill might prevent the purchase of a suitable replacement with similar and adequate accommodation. There has to be a rule determining which property attracts the exemption. Of course the system might be manipulated, but it is not a “loophole” as many commentators have described it.

If it is thought that MPs or ordinary taxpayers are taking serious liberties with what amounts to serial property dealing, then HMRC can look at the background and might believe that they are participating in an “adventure in the nature of a trade”, the profits of which would be liable to income tax, so it is not sensible or true to say that the tax man or tax woman does not have some powers to clamp down. With all the publicity MPs have received, those who have abused the system more seriously may certainly expect to receive letters from HMRC, who read the newspapers like anyone else. I should be concerned if there were some sort of knee-jerk clampdown emanating from Gordon Brown or Alistair Darling which might catch and be unfair to the innocent taxpayer.

Any system can be used or exploited. Readers of this piece might be interested to read about the late Frankie Howerd's ex-partner using the new Civil Partnership legislation to avoid Inheritance Tax and pass his estate tax free to their “son”. It is very ingenious, but just because rules can be exploited and manipulated by the clever or even the unscrupulous does not mean that they are wrong in principal or have to be scrapped in favour of some onerous and unfair regime which is detrimental to the greater “innocent” population.

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