Purnell avoided paying capital gains tax on the sale of a London property after claiming taxpayer-funded expenses for advice from an accountant.
According to The Daily Telegraph, work and pension secretary Purnell, who moved out of the department for culture media and sport at the beginning of 2008 and was replaced by Andy Burnham, saved thousands of pounds by designating his Manchester house as his main home, whereas the tax authorities considered London to be his primary residence.
Purnell bought his London flat in 2000 and his Manchester residence in 2002. He told parliamentary authorities that his main home was in Manchester and claimed his second home allowance for his London flat.
When he sold the flat in 2004 he avoided a 40% capital gains tax bill that usually applies when someone is selling a house that is not their main home -- because the property was regarded by the HM Revenue and Customs as his principal residence.
According to The Telegraph, Purnell used taxpayer money to seek advice from an accountant and exploited a legal loophole that enables a seller to claim that a property is a primary residence as long as they have lived there less than three years.
A spokesman for Purnell, quoted in the paper, said: "Any allegation that James avoided capital gains tax is completely untrue.
"When he bought his constituency home, the sale of his London flat fell through, but it was sold within the period that HMRC continue to treat it as not being liable for CGT.
"No one pays CGT when they sell the only house they own and James was not liable for capital gains tax on his London flat.
"This would have been true of any taxpayer. There was no special treatment. To be clear that he was paying the right tax, James sought advice at the time and has since contacted the HMRC to ask them to double-check.
"HMRC have confirmed that there is no CGT to pay."