Should taxpayers cover interest on MPs second home mortgages?

The subject of MPs and expenses is never far from the headlines and over the last couple of weeks a Tory minister has fallen on her sword. Despite claims that MPs expenses are being “cleaned up” the constant flow of controversial stories continues with allegations that some MPs are using the second home allowance as a means of feathering their own nests. This is the allowance which basically allows MPs to claim interest on mortgages for second homes which they use when carrying out their constituency and Westminster business.

The simple fact is that some MPs are using this allowance as an interest-free loan to invest in property and then due to weak capital gains tax rules quite legitimately avoid paying capital gains tax on a sale of their second home property.

Stretching a mortgage

It was recently reported that one MP was alleged to have used a property worth around £250,000 to gain a mortgage in excess of £500,000. While there must have been other properties used as collateral against the mortgage arrangement this is not something which would have been possible for the general public. Of course, the interest on the £500,000 mortgage would have been covered by taxpayers under the legitimate terms of MPs expenses.

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If this alleged situation is correct then in does prompt the question as to whether this particular MP used the second home allowance system out with the spirit in which it was created. It was never created to allow interest-free mortgages for MPs to invest in property, take a profit and not even pay back the interest payments received from taxpayers. It was created as a means of saving on accommodation and allowing MPs to carry out their constituency and Westminster business to the best of their abilities.

Capital gains tax queries

The quite legitimate switching of primary residency between different properties has been very popular amongst many MPs. The fact is that you do not pay any capital gains tax on the sale of your primary residency but then again the general public would not necessarily be in a position to switch their primary and secondary residences on a regular basis?

There have even been instances of MPs caught out by media stings and forced to pay back at least part of any potential capital gains tax payments which would have been expected under “normal” circumstances. The fact that one MP recently announced that they were negotiating with the UK tax office about a potential capital gains tax payment does to many people illustrate the arrogance shown by some MPs. Have you ever heard of a business person being allowed to open discussions with the UK tax office about alleged tax payments which had not been paid?

Conclusion

Despite the fact that MPs from all parties have promised to clean up the problem of MPs expenses, and in particular mortgage interest payments, very little has been done. Indeed there is a suggestion among some of the popular UK press that many of the initial changes to the MPs expenses system have actually been reversed away from the spotlight. We’ve also seen confirmation that some very public repayments have actually been handed back to MPs, or reduced on appeal, once the situation had died down.