A story about Angela Rayner MP and the sale of her property has recently been doing the rounds in the media. The reports suggest that the police are investigating possible tax evasion. Is this justified or just wild speculation?

Police and tax evasion

Recent news reports claim the police are considering if Angela Rayner (R) acted illegally in not paying capital gains tax (CGT) on the sale of a property she bought from the local council some years earlier. This seems to us unlikely. The police may in very rare cases get involved in investigating tax avoidance, but only if it involves a significant fraud. R’s case certainly doesn’t appear to reach that benchmark. Most tax avoidance, even that involving fraud, is handled by HMRC directly.

If not tax fraud then what?

The police involvement could be related to the terms of the scheme which allowed R to purchase her council house (the “right to buy” scheme). One of the conditions is that the property must be the “only or main home” of the purchaser. Based on the information presented by the media this might be in question. Making a false statement to buy your council home would be fraud, but not tax fraud. Interestingly, the “only or main” home requirement is also a condition for claiming CGT private residence relief (PRR), which it seems R must have done to avoid tax.

Is there a tax case to answer?

If R claimed and received PRR to reduce the taxable capital gain she made (apparently around £40,000) from the sale of the former council house, she would also have a tax case to answer. That’s for HMRC to consider.

“Only or main” home

As already mentioned, a primary condition that HMRC considers for PRR claims is whether, in the words of the legislation, the property “…is, or hasat any time in his (her) period of ownership been, his (her) only or main residence” . If the condition is met, PRR exempts all or part of the gain from tax. If the PRR conditions are met for only part of the period of ownership it’s time apportioned accordingly. In addition, where any amount of PRR is due the final nine months of ownership are treated as if PRR applied to it regardless of how the property was actually used in that period.

Only one residence

It seems that the council house was the only residential property that R owned. Contrary to comments we’ve seen, this doesn’t automatically mean it was her “only or main residence”. To be her residence R needed to have occupied it as her home at some point during her ownership. The courts have considered what “occupation as a home” is for CGT purposes. It’s the quality of occupation that matters. Tip. To be a home that can qualify for PRR a property should be used not only for sleeping, but also periods of living, i.e. cooking, eating a meal sitting down, and generally spending periods of leisure time at the house.

Trap. No matter how often a property is occupied, or for how long, if it’s not “quality” occupation PRR cannot apply. Simply registering a property as your home for postal, voting and other official purposes is not sufficient to make it your home for PRR purposes. Based on alleged statements referred to by the media in which R refers to “registering the property” as her home it seems she may have inadvertently fallen into this trap. We can assume that if R isn’t asked to pay CGT on the sale HMRC is satisfied that the property was her home.

It will be up to HMRC and not the police to decide if tax was evaded. The key issue is whether or not the property was her only or main residence. Whilst the MP apparently only owned one property, that doesn’t automatically qualify it for private residence relief. A property must be lived in, e.g for sleeping, cooking etc. to qualify.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.