The Telegraph has reported that Treasury Minister Kitty Ussher MP:
told the tax authorities that her Burnley home was her “principal residence” for a single month in 2007, enabling her to avoid capital gains tax.
According to a letter from her accountants, Miss Ussher had previously told HM Revenue & Customs that a house in south London was her principal residence.
Miss Ussher, who was only appointed Exchequer Secretary to the Treasury in this month’s reshuffle, temporarily changed the designation of her main home for tax purposes in early 2007, shortly before she joined the Treasury when Gordon Brown became Prime Minister.
Miss Ussher sold the property in March 2007 for £62,000, a profit of more than £40,000. Accountants calculate that the minister and her husband saved between £9,750 and £16,800 in tax.
As the Telegraph makes clear, this is legal.
And as is also made very clear, she did this for just a month on the advice of her accountants, who prepared the necessary elections for her.
But it was a blatant case of tax avoidance: clearly no one swaps their place of main residence for a month, as she claimed to have done, however legal that claim might be.
And that is the point: this transaction may have been legal, but it was also very obviously unacceptable. Tax avoidance is clearly unacceptable now: people have to be tax compliant, where tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. The claim that the property sold was a main residence for just a month obviously does not meet this requirement.
This should send shock waves down the banks of all who ever plan to seek public office and those who advise them. The old mantra that ‘it’s legal so it is acceptable’ no longer holds true. Tax avoidance is unacceptable now: tax compliance is required. And this will spread: the same will become true of companies and their directors. A new standard has been set.
I had little time for Kitty Ussher as a minister: she struck me as an unreformed neo-liberal in New Labour clothing. But for providing this unambiguous proof that tax avoidance is harmful I offer her my thanks. I somehow doubt she’ll see the benefit, but society will.
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Whilst agreeing with you that this seems to have something wrong about it, the fact is that it is officially approved by HMRC and I would imagine that any accountant who did not at least advise their client about the possibility of doing this could be looking at a negligence claim.
Look at paragraph 64510 of the Capital Gains Tax Manual. In the Revenue’s own example the second residence is nominated as the main residence for only one week, and is actually done after it has been sold. Provided that Kitty Usher actually used both of her residences and therefore could validly make a choice as to which was her main residence for the purpose of the exemption, her behavior is condoned by HMRC itself.
You and I might not like it, but you can hardly blame anyone who does it when HMRC actually advise you how to go about it in quite specific detail. I think it has to regarded as officially acceptable tax avoidance until such time as the HMRC manual is amended.
Mike, I dara say yo cannot bring yourself to blame anyone, but there are plenty of (tax paying) people in the country who can indeed blame Kitty. The law is not the measure of what is right and wrong. To a greater or lesser extent, it reflects what is right and wrong. No, I don’t view HMRC as having the final word on right and wrong, either! We all have a duty to decide for ourselves what is right and wrong and we can’t expect the law or HMRC to take that responsibility away.
You’ve been a very naughty Kitty indeed!
A Treasury minister not paying the “right amount of tax”?
I see her being described as a rising star. In my opinion she’s more like something that just won’t flush away – another example of the bad rubbish who “just don’t get it” (and never will judging from what she says in her farewell comments). Good riddance.
Now, Mr Darling, let’s be having you too..
“Officially acceptable tax avoidance”?
I wonder if whoever wrote that bit of the manual had a second home him- or herself?
M
This is one of those cases where the law (and therefore HMRC) facilitates a form of tax avoidance that doesn’t stand up to public scrutiny.
HMRC’s guidance is intended to reflect the law – it doesn’t create the law. I’m surprised to see confirmation in their guidance that such an arrangement is safe from attack. Indeed I’m not even sure it’s 100% correct unless the taxpayer lives in the 2nd home during that one week period (or during the one month period in Ms Usher’s case).
I wrote about this from a different perspective on the taxBuzz blog this morning: http://www.Tax-Buzz.co.uk
Mark
I agree with you
The HMRC manual is, on this one, decidedly ‘racey’
I’d rely on it as much as I would do the old IR20
Richard
“I had little time for Kitty Ussher as a minister: she struck me as an unreformed neo-liberal in New Labour clothing.”
Or as the FT reported one year ago: “Ms Ussher has joined John Hutton, business secretary, in seeking to persuade the City that the government continues to celebrate the opportunity of successful people to become very rich.”
http://www.ft.com/cms/s/0/8e63224e-3688-11dd-8bb8-0000779fd2ac.html
Richard, I think you are missing the point. There is no legal issue with what Kitty did. The problem is in a Government minister not practising what her government preaches. As one so well versed in ethics and morality I would have expected you to get this!
Alastair
And if you understood ethics you’d know tax avoidance is legal but unethical
Which is the point I exactly get, and have for a long time
Richard
“And if you understood ethics you’d know tax avoidance is legal but unethical”
In your view. I would say failing to compost green waste, drinking milk but not eating veal and (this one particularly relevant here) flying around the world to conferences are also legal but unethical. But then I am more concerned with the environment than I am with tax revenues.
But you presumably believe that the damage to the environment you cause by flying to Washington one week and wherever the next is justified, and doesn’t detract from you propounding a new green deal. But to me, I just see environmental damage and self-serving excuses.
And that is the problem with ethics: because everyone has different ethics you cannot objectively decide what behaviour is ethical or not. Very few people think they are unethical – most believe that in their cases, the action is justified.
Bono probably thinks it’s OK for him to dodge taxes because he can then give more to charity, just as you think its OK to fly around because it helps raise the tax justice profile. But just as you see a hypocritical tax dodger, I see a hypocritical climate abuser.
Paul
Which is why, of course, I spent this morning wiorking out video conferencing alternatives to some conferences I need to attend
But yes, some travel will remain a part of life, much as I actually really don’t enjoy it. Tackling global problems sometimes requires travel
I guess you’d rather the problem persists – hence your argument
Richard
Richard,
I honestly don’t have the answers, but I simply make the point that while one can relatively easily decide whether something is legal or not, what is ethical is a much more complex calculation, and involves factoring in all sorts of ancillary considerations. Although with politicians, I suspect their “ancillary ethical calculations” were back of the fag packet maths.
Paul makes a good point. So Richard, perhaps you might be prepared to concede that tax avoidance in your opinion is immoral, rather than unacceptable (which clearly it isn’t). Strangely I think that might strengthen your argument!
Alastair
If something is immoral is it acceptable?
Richard
Well, the problem with unethical or immoral behaviour is that society has decided not to punish it. The reason for this is simple: it isn’t long before people are being imprisoned or executed for offences such as adultery, looking at the Ayatollah the wrong way, homosexuality, wearing inappropriate clothing, listening to pop music etc. You end up with a secret, morality police: no thanks.
The history of the 20th century is surely a warning that once ethics and morality become the standards by which judgements are made, rather than adherence to the law, we invariably end up in a dictatorship. Immorality is acceptable in a democracy: it is not in a theocracy, that is the difference. And that is why, in my view, Islam is currently proving attractive to many: because there seems to be a moral vacuum at the heart of liberal democracy. That needs to be fixed, but if the answer is punishing immorality or unethical behaviour, I’m not sure that the medicine isn’t worse than the cure.
The right to do what others believe is unethical or immoral is the cornerstone of a free society. Without that, no rule of law. If you want to see a society which purports to be run on ethical principles, Saudi Arabia and Iran are the most obvious examples.
Paul
That’s absurd
What we have to do is bring our law into line with what is acceptable
It has ever been thus:
– slavery
– hanging
– working conditions
– equality of all forms
etc
etc
Now tax
Get real and stop being melodramatic when there is no reason, except to support the status quo of abuse
Richard
Yes Richard, but the problem here is that most people who can avoid tax do. Hence widescale smuggling historically, the proliferation of people selling ciggies in pubs, the builder who takes cash in hand, the willingness of the public to buy via Indigostarfish, even things like benefits fraud etc etc. Most people don’t care about tax, they just want to have as much money left over for themselves. That won’t change.
There is no consensus that tax avoidance is ethically wrong. Whenever people are invited to vote on tax, they vote to reduce it for themselves. And the disgust at MPs was not because they were dodging tax, but because they were hypocrites and had exempted themselves from the law.
I would say it is you being melodramatic when you describe normal everyday behaviour as morally wrong and unacceptable. Let he who is without sin etc…
Paul
I sincerely hope you’re not making aspersions
Richard