Editor’s note: This article was originally published on 12 April 2024 and was updated on 29 May. On 28 May, Greater Manchester Police announced they will take no further action against Labour deputy leader Angela Rayner after investigating whether she gave false information to the Electoral Commission about her primary residence before she was an MP.
In February, the tax lawyer Dan Neidle – an expert who in the past few years has taken on Nadhim Zahawi, Michelle Mone and the Post Office – began looking into press speculation over Angela Rayner’s tax affairs.
The New Statesman asked him to update us on what he’s discovered since then. Here are his findings:
What’s the story?
Angela Rayner bought her council house in 2007 and sold it in 2015. She didn’t take tax advice at the time, and may or may not have incurred capital gains tax she didn’t pay. Her initial explanation in February was based on a misunderstanding of the rules. She is now insisting she owed no capital gains tax, but not explaining why that was.
What did she misunderstand?
Rayner’s initial response to accusations she hadn’t paid capital gains tax on the sale was to say:
“As with the majority of ordinary people who sell their own homes, I was not liable for capital gains tax because it was my home and the only one I owned.”
This, however, is not how the rules work.
It’s true there’s a capital gains tax exemption when a person sells their “main residence”. But married couples are only permitted one main residence between them. Rayner married Mark Rayner in September 2010 and so, from that point, they had one main residence.
So Rayner’s response was not correct and suggested to me that she hadn’t received tax advice at the time, and may have misunderstood the position.
In March, a spokesman for Rayner told the Times: “Gossip and hearsay does not change the fact that Angela Rayner maintained her own home while sharing childcare responsibilities with her husband at his property. Angela Rayner has set out her family’s circumstances and has taken expert tax and legal advice which confirms that no capital gains tax was payable on the sale of her home.”
Which property was their joint main residence?
A married couple who own more than one home are free to choose which is their “principal residence” for capital gains tax purposes by sending a nomination to HMRC within two years of the situation arising. If they don’t, relief applies by reference to which home was their joint main residence as a matter of fact.
Given Rayner’s apparent misunderstanding of the law, it would be surprising if she and her husband had made a nomination to HMRC. On the facts available, it seems reasonably clear their joint main residence would have been her husband’s house: he seems to have lived only there, their children lived mostly there, and she lived there at least some of the time.
There’s been much speculation about where (Angela) Rayner’s home was during the period of her marriage. But this isn’t terribly relevant – the question is where their joint main residence was, and there’s little doubt that was her husband’s house.
How much tax are we talking about?
I estimate no more than £3,500. There are two parts to this calculation.
First, the gain on the sale. This is Rayner’s £127,500 sale price in 2015, minus the original £79,000 purchase price in 2007, and minus the approximately £4,000 of costs on the sale and purchase – resulting in a gain of £44,500.
Second, for some of the time Rayner owned the property, it was exempt. Before she moved in with her husband, it was her sole home – so that’s at least four years of exemption. And then the rules at the time gave another 18 months of exemption at the end of her ownership. So the exemption applies for about 48 per cent of the time she owned it.
That leaves 52 per cent of the £44,500 gain to be taxed: £23,140. The capital gains tax annual exemption amount for 2014/15 was £11,000. This would mean a taxable gain of about £12,000 and capital gains tax of of no more than £3,500. But this could be reduced if Rayner had “enhancement expenditure” on the property – having work done which increased the value of the property.
Could Angela Rayner have no tax to pay?
There are various scenarios in which Rayner could have no tax to pay. I’ll set them all out in the interests of completeness, starting with the most plausible, and running down to explanations that I think are most unlikely:
• She had significant “enhancement expenditure”, which means she in fact had no capital gain. I estimate she’d need to have spent about £23,000 if she moved into her husband’s house in 2009, or £15,000 if she moved in in 2010. I don’t know what her actual enhancement expenditure was, or even if she had any. This, however, seems the most plausible route to her having no capital gains tax liability.
• Angela and Mark Rayner jointly nominated her property as their main residence, so she is completely exempt from capital gain on her sale. I suspect many advisers would have suggested this, given that she acquired the property at a discount, and so had a large potential capital gain. However, indications are that she didn’t receive advice at the time, so I’d be surprised if any nomination was made.
• She claimed letting relief for renting the house to her brother. In 2015, this applied to the letting of a whole property. She has said she’s never been a landlord, and the implication is that this was an informal rent-free arrangement. If so, it is doubtful that letting relief could have applied (but perhaps not out of the question).
• Angela and Mark Rayner didn’t nominate a main residence to HMRC, but their joint main residence was, as a matter of fact, actually her house. Again, she would be completely exempt from capital gains on the sale. This seems very unlikely based on the reported facts.
• Tax planning: she gave some of her ownership of the property to her husband before she sold it, so they could both use their annual capital gains tax exemption, perhaps wiping out the gain. It feels unlikely given that Rayner doesn’t appear to have received tax advice previously. And of course, while this kind of thing is fairly common tax-planning in some quarters, eyebrows would be raised at a Labour MP using it.
• There was actually capital gains tax on the sale, but it’s sufficiently long ago that HMRC are out of time to collect it (where someone fails to pay tax unintentionally, HMRC generally can’t go back further than six years). I don’t think this is consistent with her statements (she says she had no capital gains tax) and I think many people would be outraged at a politician using a limitation period to avoid paying tax that was due.
And I can’t exclude some other explanation for why no tax may have been payable.
Is there any question here of tax fraud?
Calls for prosecutions for tax evasion were silly when we were talking about Nadhim Zahawi; they’re plain daft when we’re talking about Angela Rayner. The tax system is complicated, and lots of people accidentally pay the wrong amount of tax (I’ve done it myself). That’s not a crime. It’s not a crime even if you’re careless or negligent. Ignorance is (in effect) a defence to the crime of tax evasion, because “tax evasion” means intentionally and dishonestly failing to pay tax.
Why is anyone interested in this?
I became interested when Rayner published a statement that she had no capital gains tax on the sale because it isn’t charged on homes, and the house was her home. This was wrong, and so sparked my interest – when someone gets tax wrong, an obvious inference is that they may have paid the wrong amount.
I didn’t think that would be terribly serious – tax is complicated, and lots of people get tax wrong. So I thought Rayner would explain her position, and either it would turn out no tax was due, or she would apologise for getting it wrong, and we’d move on. That obviously hasn’t happened and, if it turns out she didn’t pay tax that was due, the stakes may be higher.
What will happen if or when she explains her position?
If the explanation was a joint main residence nomination by her and her husband, or plausible-looking improvement expenditure, then that should be the end of the matter as far as reasonable commentators are concerned. If it’s one of the other scenarios above then I would be rather more sceptical.
If it appears that a politician has failed to pay tax then there is a legitimate public interest in investigating it: £3,500 is a significant amount of money for many people, and it’s corrosive to public trust in the tax system if there’s a perception that there’s “one rule for us and one for them”.
Why is this getting so much more attention than your original accusation that Nadhim Zahawi had failed to pay tax?
One obvious reason is politics, about which everyone will no doubt have their own opinion. Another reason is that Zahawi and his lawyers used libel law to threaten journalists reporting on his affairs. In retrospect, it’s clear that was a bluff, but at the time this strategy was highly effective in limiting adverse press coverage. Rayner has not taken that approach, and her very different financial situation to Zahawi means that it is probably not something she could do, even if she wanted to.
Should we require all politicians to publish their tax returns?
I’m not generally in favour of forcing politicians to publish all the details of their tax affairs. Anyone with something to hide will hide it, and all we’ll see are prurient details of their financial affairs, plus the occasional accident or mistake.
Aren’t you biased?
I’ve been delighted to have received hate mail both accusing me of being a misogynist Tory shill for saying Rayner’s initial explanation was wrong, and of being a Labour puppet for saying that it’s daft to accuse her of tax fraud. (It wasn’t the same letter.)
I’ve never hidden my politics – I’m a member of the Labour Party, but my tax analysis has always been non-partisan. I’ve accused precisely two MPs of not paying their tax: one Conservative, Nadhim Zahawi, and one Labour, Ian Lavery (Lavery has said he didn’t owe a penny in tax). I’ve published refutations of accusations of tax avoidance against David Cameron, Jacob Rees-Mogg, Jeremy Hunt and Rishi Sunak.
Everyone – whatever their party – should react to credible accusations of a Tory MP not paying their tax in the same way as credible accusations of a Labour MP not paying their tax. Playing partisan games just further corrodes the public trust in both tax and politics.
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