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Deputy Prime Minister Angela Rayner faces the prospect of a fine from tax authorities, in addition to a potential £40,000 payment for underpaid stamp duty, according to tax experts.
Rayner, who also serves as the minister overseeing housing, has acknowledged a shortfall in stamp duty paid on her £800,000 flat in Hove, East Sussex, attributing it to inadequate counsel.
HM Revenue and Customs (HMRC) possesses the authority to impose penalties for tax underpayments stemming from “careless” handling of tax matters.
Whether Rayner incurs a penalty, typically ranging from 20% to 30% of the unpaid tax, hinges on the extent to which she sought and relied upon qualified legal advice.
Rayner has stated that she received inaccurate guidance from legal professionals, but questions persist concerning whether she consulted specialist tax advisors.
Even with legal consultation, a fine, potentially amounting to 30% of the underpaid tax (an additional £12,000), remains a possibility.
“A significant error has occurred, whether on the part of the law firm involved in the purchase or by Ms. Rayner herself,” commented Sean Randall, an independent stamp duty specialist.
He suggested that she faces a “significant risk” of penalty, as assigning blame to an advisor may not constitute a sufficient defense.
“While one might sympathize with her reliance on tax advisors, simply trusting an advisor is generally not a valid defense against a penalty for negligence,” Randall added.
The core of the issue concerns a three-bedroom flat in Hove, East Sussex, acquired by Angela Rayner for £800,000 in May.
At the time of purchase, she declared it as her sole property, resulting in a stamp duty payment of £30,000, rather than the £70,000 that would apply to a second home.
She maintained that it was her only residence due to her prior relinquishment of her stake in the family home in her Ashton-under-Lyne, Greater Manchester constituency.
Rayner co-owned that property with her former husband, Mark Rayner, from 2016.
As she explained in a statement, a trust was established in 2020 under court order to manage funds resulting from a medical incident that left their son with lifelong disabilities.
In 2023, upon finalization of her divorce from Mark, both parties chose to place a portion of their ownership in the family home into their son’s trust, for which they serve as trustees.
This arrangement facilitated a “nesting” setup, allowing the children to remain in the family home while the parents alternated residency.
Rayner sold her remaining 25% share in the home to her son’s trust in January, receiving £162,500.
The trust’s establishment was overseen by Shoosmiths, a prominent law firm providing counsel on diverse legal domains, including tax and property matters.
However, she sought legal guidance from a different, unnamed firm when purchasing the Hove flat.
In a statement to BBC News, a Shoosmiths spokesperson clarified that they “did not act for the Rt Hon Angela Rayner in relation to the purchase of her Hove property and/or the [stamp duty] aspects of that property.”
“Ms. Rayner is not a current client of the firm and has not been for some time.”
Rayner’s team has not disclosed details regarding the alternate law firm consulted, and it remains unclear whether it was a conveyancing lawyer specializing in property transactions or a more specialized tax advisor.
Rayner stated that when purchasing the Hove flat, “my understanding, on advice from lawyers, was that my circumstances meant I was liable for the standard rate of stamp duty.”
This assertion was based on the fact that she held no direct financial stake in the Ashton home, despite her children’s continued residence and her consideration of it as her primary residence. She also spends time at a government-provided flat in Admiralty Arch, central London.
However, this legal advice appears to be flawed. Tax law stipulates that if a property is held in trust for the benefit of children under 18, the parents of those children are considered the owners of the home for stamp duty purposes.
“If you have a trust in favor of your children, then it’s treated as your property,” stated Dan Neidle, founder of Tax Policy Associates and a member of the Labour Party.
“We’re talking about a deeming rule which deems a person, in this case Angela, to own a property in the stamp duty world…in circumstances [where] she doesn’t own it at all in the real world,” Randall added.
The nature of the legal advice Rayner sought when purchasing the Hove property is critical.
If she consulted solely a conveyancing lawyer lacking tax expertise, it may be more difficult to argue against negligence and avoid stringent penalties from HMRC.
“My suspicion in this case…is that she didn’t give all the circumstances of the trust to the conveyancing lawyer,” said James Quarmby, head of private wealth at Stephenson Harwood.
“The conveyancing lawyer may have just asked the bland question ‘do you own any other properties?’ And she says ‘no’.”
He noted that property lawyers typically specify in their contracts that they do not offer tax advice.
Quarmby expressed his belief that there is a “high” risk of Rayner being fined and that tax officials would scrutinize the advice she received and the instructions she provided to her lawyer.
“Relying on advice is not a complete defense – it must be reasonable to do so in the circumstances and that advice cannot be ‘obviously wrong’,” he stated.
“Someone in the Revenue now with the whole glare of the UK’s media on them is going to make a decision as to whether Rayner was careless,” he said.
“If she gets a penalty for carelessness she is politically screwed.”
Another pivotal question is whether Rayner disclosed the existence of her son’s trust and its impact on the ownership of her family home to the legal professional she consulted, assuming it was a conveyancer.
A spokesman for Rayner declined to address these inquiries.
“If you’re buying property and you have complicated affairs involving a trust, you need to speak to a tax adviser and tell them about the trust,” Neidle advised.
“If she did that and they got it wrong, {it is} not her fault. But if she didn’t go to a specialist or didn’t tell them about the trust, I think it was her fault,” he added.
“I think a normal person with any sophistication would realize they should mention the trust when getting advice about something else. And a deputy prime minister who’s already got into a previous tax scrape involving properties, surely should have a go.”
He asserted that this would also influence how HMRC assesses penalties for the underpaid tax.
Rayner is now subject to an inquiry by the standards watchdog.
She has previously voiced criticism of tax avoidance and deemed former Conservative chancellor Nadhim Zahawi’s position “untenable” following revelations of a dispute with HMRC regarding his tax affairs.
Zahawi, who was compelled to resign as Tory party chairman for failing to disclose his settlement with HMRC, ultimately paid £5 million to resolve the dispute, including a 30% penalty for “carelessness.”
A similar verdict concerning Rayner’s conduct from Sir Laurie Magnus, the independent ethics advisor, or from tax authorities could prove politically damaging.
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