TAX NEWS - JUNE 2010

UK Tax: UK Treasury's Alexander Denies Avoiding Capital Gains Tax (CGT)

LONDON -- The second-in-command at the U.K. Treasury Monday said he hadn't avoided paying capital gains tax on the sale of a London property in 2007.

Danny Alexander was appointed chief secretary of the treasury Saturday, after David Laws resigned over allegations that he had broken parliamentary rules in claiming as expenses GBP40,000 he had paid his partner in rent and other housing costs.

That came as a major blow to the government, which has been in office for less than three weeks. The chief secretary will be responsible for identifying the spending cuts needed to cut the government's huge deficit, starting with an emergency budget due June 22.

But the day after Alexander's appointment, the Daily Telegraph reported that he had avoided paying capital gains tax on the sale of his former London home by designating it as his first home for tax purposes, while claiming expenses from parliament on the basis that it was his second home, his main residence being in Scotland.

In a statement, Alexander insisted that he had acted within the law, which allows home owners to avoid paying tax on a property if they sell it within 36 months of it ceasing to be their only or main home.

"I sold the Elspeth Road flat in 2007 and moved to another flat but was advised that Capital Gains Tax (CGT) was not payable because of the operation of final period relief, which exempts homes from Capital Gains Tax (CGT) for 36 months after they stop being the main home," Alexander said. "I paid all the taxes required but Capital Gains Tax (CGT) was not payable on the disposal of my Elspeth Road flat."

Capital gains tax in general is a pressing issue for the coalition government, which has said it will raise the rate of taxation to bring it into line with income tax rates. Capital gains tax is currently charged at 18%, but the highest rate of income tax is 50%.

However, the issue appears to divide the two parties that make up the coalition, with the Liberal Democrats favoring the move as a step towards making the tax system fairer, while many in the Conservative Party oppose the move.

Alexander said he is committed to paying capital gains tax on his current London home if and when the time comes to sell it.