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Angela Rayner at risk of fine over stamp duty, say tax experts What we do and don't know about Angela Rayner's tax affairs
(about 11 hours later)
Deputy Prime Minister Angela Rayner is at risk of a fine from the tax authorities in addition to having to pay an additional £40,000 in underpaid stamp duty, tax experts have said. Mystery continues to swirl around the expert advice Angela Rayner said she received before buying a flat in East Sussex.
Rayner, who is also the minister in charge of housing, has admitted she paid less in stamp duty on her £800,000 flat in Hove, East Sussex, than she should have done, claiming she was badly advised. Rayner, who is also the minister in charge of housing, has admitted she underpaid stamp duty on her £800,000 flat in Hove.
HM Revenue and Customs (HMRC) can levy penalties when tax has been underpaid if someone has been "careless" with their tax affairs. She claimed she was badly advised, with allies suggesting she'd received advice on the sum owed from three people – a conveyancer and two experts on trust law.
Any penalty for Rayner, which is typically 20% or 30% of the underpaid tax, could hinge on whether she took appropriate legal advice. However, the conveyancing firm, Verrico & Associates, has now said it did not give her tax advice.
Rayner has said she was misinformed by lawyers, but questions have been raised about whether she sought specialist tax advice. In a statement, the company's founder Joanna Verrico, said the company "does not deal with Trusts or offer tax advice" and that it calculated the stamp duty owed in good faith "based on the facts and information provided to us".
Even if she did, she could still face a fine likely to be 30% of the underpaid tax, meaning an additional £12,000.
"Someone has made a big mistake. Whether it's the law firm acting for her on the purchase, or whether it is her," said Sean Randall, an independent stamp duty expert.
He said she was at "significant risk" of a penalty because blaming an adviser may not be a sufficient defence.
"She might say I relied on my tax advisers to advise me correctly. And I definitely sympathise with that [but] usually simply relying on your adviser is not a defence for a penalty of carelessness," Randall added.
What we knowWhat we know
The dispute centres around a three-bedroom flat in Hove, East Sussex which Angela Rayner bought for £800,000 in May this year. At a core of the tax scandal are questions for Rayner about whether she sought the right specialist tax advice when buying the three-bed Hove property.
When she bought the flat, she declared that it was the only property she owned, meaning £30,000 of stamp duty was paid, rather than the £70,000 due if it is a second home.When she bought the flat, she declared that it was the only property she owned, meaning £30,000 of stamp duty was paid, rather than the £70,000 due if it is a second home.
She claimed it was the only home she owned because she had previously given up her stake in the family home in her constituency in Ashton-under-Lyne, Greater Manchester.She claimed it was the only home she owned because she had previously given up her stake in the family home in her constituency in Ashton-under-Lyne, Greater Manchester.
Rayner had bought that property with her then-husband, Mark Rayner, in 2016. But her situation was complicated because she had transferred that stake into a trust set up to benefit her disabled son.
As she outlined in a statement, in 2020 a trust was set up under the instructions of a court to manage a payout for a medical incident which had left their son with life-long disabilities. The trust was set up in 2020 under the instructions of a court to manage a payout for a medical incident which had left her and her then-husband Mark's son with life-long disabilities.
In 2023, when her divorce from Mark was finalised, the pair elected to place part of their stakes in the home into their son's trust, for which they are among the trustees. She split from Mark and in 2023, when their divorce was finalised, the pair elected to place part of their stakes in the home into their son's trust, for which they are among the trustees.
This was to enable a "nesting" arrangement, meaning the children could remain in the family home while the parents alternated living there.This was to enable a "nesting" arrangement, meaning the children could remain in the family home while the parents alternated living there.
Rayner sold her remaining 25% stake in the home to her son's trust in January this year, for which she received £162,500. Earlier this year she sold her remaining 25% in the home to another trust set up for her son's benefit and received £162,500 which she put towards her purchase in Hove.
The trust had been set up by Shoosmiths, a major law firm which offers advice on many areas of law including tax and property. Rayner said that when she bought the East Sussex flat, "my understanding, on advice from lawyers, was that my circumstances meant I was liable for the standard rate of stamp duty".
But when she purchased the flat in Hove , she sought legal advice from a different, unidentified firm.
In a statement, a spokesperson for Shoosmiths told BBC News 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 have not provided details of the lawyers or law firm she used instead, but a source close to her told the BBC she initially consulted three people about the purchase of her Hove flat - one individual experienced in conveyancing and two experts on the law around trusts before the purchase.
However, it is unclear if any of those people were experts in complex tax law and it is not known if they knew about the full details of the trust, which was set up to help fund care for her son.
Rayner said that when she bought 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 was because she had no financial stake in the Ashton home, even though her children remained there and she considered it her main residence. She also spends time at a government-provided flat in Admiralty Arch, central London.This was because she had no financial stake in the Ashton home, even though her children remained there and she considered it her main residence. She also spends time at a government-provided flat in Admiralty Arch, central London.
However, this legal advice was wrong. This is because under tax law, if a property has been placed into trust for the benefit of children under 18, the parents of those children are deemed to be owners of the home for stamp duty purposes.However, this legal advice was wrong. This is because under tax law, if a property has been placed into trust for the benefit of children under 18, the parents of those children are deemed to be owners of the home for stamp duty purposes.
"If you have a trust in favour of your children, then it's treated as your property," said Dan Neidle, founder of Tax Policy Associates and a member of the Labour Party."If you have a trust in favour of your children, then it's treated as your property," said 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. "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," said Sean Randall, an independent stamp duty expert.
Unanswered questionsUnanswered questions
The question of what legal advice Rayner took when she bought the Hove property is crucial. Although we know who the conveyencer was, Rayner's team have refused to answer questions about who the two trust experts she consulted on her Hove purchase were.
If it was simply a conveyancing lawyer with no tax expertise it is likely to be much harder for her to argue that she hasn't been negligent - and to avoid harsh penalties levied by the taxman. That means we don't know whether the trust experts also have specialised knowledge of tax law, particularly around stamp duty.
"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. That is likely to be at the centre of ethics adviser Sir Laurie Magnus's assessment of whether she sought appropriate advice.
"The conveyancing lawyer may have just asked the bland question 'do you own any other properties?' And she says 'no'". We also don't know what level of information about the trust they had.
He said property lawyers typically state in their contracts that they don't provide tax advice. However, we do know that Rayner elected not to use at least two large law firms who had previously been involved in her son's trust.
Quarmby said he believed there was a "high" risk of Rayner being fined and that tax officials would want to see the advice she relied on and details of the instructions she had given her lawyer. The trust was set up in 2020 using law firm, Shoosmiths and a lawyer at the company was one of the trustees.
"Relying on advice is not a complete defence - it must be reasonable to do so in the circumstances and that advice cannot be 'obviously wrong'," he said. That lawyer, who is still a trustee, moved to Rothley Law in July 2023 as a result of an acquisition.
"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. Shoosmiths have said they did not act for Rayner on her flat purchase or advise on stamp duty and that she was "not a current client of the firm and has not been for some time".
Another key question - if the legal advice sought was from a conveyancer - is whether Rayner even mentioned her son's trust and the role it played in the ownership of her family home. Rothley Law have not responded to a request for comment.
A spokesman for Rayner declined to answer these questions. Earlier this year, Rayner sold her remaining 25% stake in the house to a trust previously set up for her son's benefit. She received £162,500 which she put towards the purchase of the Hove flat.
She used a large regional firm, Midlands-based mfg Solicitors, for that transaction. But she didn't use their services for the purchase of the Hove property, nor did they provide any tax-based advice on that transaction, the company told BBC News.
Tax experts have questioned why she elected not to use a large law firm familiar with the complexities of trusts and tax law to act for her in the purchase of the Hove property.
Instead, she used as small family-run conveyancing firm based in the seaside town of Herne Bay in Kent.
That company, Verrico & Associates, employs two licensed conveyancers and four other staff and does not offer tax advice. The name of the company, which appears on a Land Registry document, was first reported by The Guardian.
HMRC investigation
Having admitted she underpaid stamp duty, Rayner must pay a £40,000 bill, plus interest, to the taxman.
She is also at risk of a from the tax authorities who will now investigate whether she has been "careless" with her tax affairs.
Any penalty for Rayner, which is typically 20% or 30% of the underpaid tax, could hinge on whether she took appropriate legal advice.
"Someone has made a big mistake," said Sean Randall, an independent stamp duty expert, adding that whether the mistake was by her professional advisors or Rayner herself, she was at "significant risk" of a penalty because blaming an adviser may not be a sufficient defence.
"She might say 'I relied on my tax advisers to advise me correctly'. And I definitely sympathise with that [but] usually simply relying on your adviser is not a defence for a penalty of carelessness," Randall added.
"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 said."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 said.
"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. "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 realise 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.""I think a normal person with any sophistication would realise 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 said this would also affect how HMRC levied penalties on the underpaid tax.He said this would also affect how HMRC levied penalties on the underpaid tax.
Rayner now faces an inquiry by the standards watchdog. James Quarmby, head of private wealth at Stephenson Harwood, said he believed there was a "high" risk of Rayner being fined and that tax officials would want to see the advice she relied on and details of the instructions she had given her lawyer.
She has previously been critical of tax avoidance and also called former Conservative chancellor Nadhim Zahawi's position "untenable" when details emerged that he was in dispute with HMRC over his tax affairs. "Relying on advice is not a complete defence - it must be reasonable to do so in the circumstances and that advice cannot be 'obviously wrong'," he said.
"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.
Rayner has previously been critical of tax avoidance and also called former Conservative chancellor Nadhim Zahawi's position "untenable" when details emerged that he was in dispute with HMRC over his tax affairs.
Zahawi, who was forced to resign as Tory party chairman for failing to declare that he paid a settlement to HMRC, ended up paying £5m to settle the dispute - a sum which included a 30% penalty for being "careless".Zahawi, who was forced to resign as Tory party chairman for failing to declare that he paid a settlement to HMRC, ended up paying £5m to settle the dispute - a sum which included a 30% penalty for being "careless".
A similar verdict on Rayner's conduct from Sir Laurie Magnus, the independent ethics adviser, or from the tax authorities may prove politically fatal. A similar verdict on Rayner's conduct from Sir Laurie Magnus, the independent ethics adviser, on Friday is likely to be politically fatal.