Ministers may face tax on their perks

AN INLAND Revenue inquiry into Lord Irvine’s collection of paintings could see a string of senior ministers pay tax on their grace and favour apartments, The Scotsman has learned.

Lord Irvine, the Lord Chancellor, is facing calls from senior Conservatives for the Inland Revenue to investigate whether he is liable to pay tax on the 1.5 million worth of paintings he has borrowed from galleries in Scotland and England.

A leading accountant has warned the inquiry could be the "tip of the iceberg" and may result in Cabinet ministers John Prescott, the deputy Prime Minister, David Blunkett, the Home Secretary, Robin Cook, the Leader of the House and Margaret Beckett, the Rural Affairs Secretary, paying tax on their official London apartments.

Ministers are exempt from paying tax on the rental value of their official residencies if they can fulfil three Inland Revenue criteria: if they need the accommodation because there is a threat to their security; if it is necessary to live there in order to carry out their duties and if it is customary to provide such accommodation for "the better performance of their duties".

These rules allow Tony Blair and Gordon Brown, for example, to live tax free in Downing Street and permit Jack Straw, the Foreign Secretary, to escape paying duty for his official residence in Dorneywood, Buckinghamshire.

However, Maurice Fitzpatrick, a leading tax expert with Tenon, a City accountancy firm, believes the Inland Revenue may start to question the right of other ministers enjoying the tax-free benefits of having an official residence.

"If the Inland Revenue is looking at the Derry Irvine situation and is going to investigate the value of his paintings which are not covered by tax exemption, then it might spark their interest in the whole issue of ministerial accommodation. The jump might be made," he said.

Mr Fitzpatrick warned the Inland Revenue could be "remorseless" in examining the taxable benefits from accommodation provided for company chief executives.

"The Lord Chancellor has the enjoyment of the paintings through his employment. You or I cannot obtain these paintings for our home. He has the enjoyment when he is at his apartment. Therefore it is a benefit and is taxable," he said.

Lord Irvine and his wife Alison have borrowed more than 100 works of art for his refurbished apartment in the Palace of Westminster. Most of the paintings have come from the National Galleries of Scotland, the Royal Academy and the National Portrait Gallery.

Lord Irvine has come under pressure recently to return some of his Scottish treasures back to their home country.

The owners of Bathers on the Beach at Trouville by Eugne Boudin, who donated the work to the National Galleries for the people of Scotland, wrote an open letter insisting the painting be returned to the Edinburgh gallery.

It is thought the Lord Chancellor may escape the long arm of the Inland Revenue as his apartment is open to the public on certain occasions. But David Davis, the shadow deputy prime minister, is calling for a wide ranging inquiry into the whole issue of ministers’ benefits in kind.