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There have been repeated reports that the Treasury was poised to ban such deeds of variation, but they remain an entirely legal device.

London, April 22, 2007

David and Adolf Miliband

How David Miliband avoided inheritance tax on Marxist father's £1.5million house

By Jonathan Oliver
Original version:

DAVID Miliband (at left with father) is living in a £1.5million London townhouse at the centre of a complex inheritance-tax avoidance scheme Gordon Brown has pledged to ban.

The Cabinet Minister, who is being urged to challenge Mr Brown for the Labour leadership, exploited an Inland Revenue loophole which has been used to reduce deathduty bills.

Mr Miliband lives with his wife Louise, a classical musician, in a four-storey terrace in ultra-fashionable Primrose Hill, North London.

Previously, the Georgian property had been the family home of his parents, Marxist sociologist Ralph and Marion, also a Left-wing academic.

Ralph died in 1994 aged 70, leaving his estate, then valued at £349,000, to his wife. But it is understood that shortly after his death, Marion and her sons David and Edward, who is also a Labour Minister, agreed a 'deed of variation'.

The move meant that 40 per cent of the equity of the Primrose Hill home was transferred to the sons, who were each given a 20 per cent share in the house.

Accountants say this unusual type of agreement is almost always drawn up in order to reduce a family's total death duty bill.

Mr Miliband's complicated arrangement will raise eyebrows among Labour colleagues, not least because it goes against his family's deeply-entrenched socialist background.

Belgian-born Ralph, who fled the Nazis in 1940, became in the Sixties and Seventies one of Britain's most celebrated intellectual disciples of Karl Marx, who famously frowned on the concept of "private property".

Ralph, who was originally called Adolphe but changed his name when he came to Britain, was an iconic figure on the Labour Left, whose writings influenced two generations of Socialist leaders.

The death duty loophole was named by Gordon Brown as one of 25 "tax abuses". The Chancellor has complained that the wealthy regard inheritance tax as "voluntary".

There have been repeated reports that the Treasury was poised to ban such deeds of variation, but they remain an entirely legal device.

Inheritance tax is charged at 40 per cent above a set threshold, which in 1994 was £150,000. The Milibands' deed of variation would have ensured that Ralph's zero-rated death duty allowance was fully used up.

This would have potentially meant that when Marion died, a slice of the family estate was already in the names of the two children, so the final inheritance tax bill would be reduced.

Primrose Hill, near Regent's Park, was once a popular haunt with radical intellectuals and hosted a strong community of Jewish emigres who, like the Miliband parents, fled the Holocaust.

The Miliband house on Edis Street became a socialist salon. The young David Miliband and his brother Ed were introduced to radicals including Tony Benn and firebrand polemicist Tariq Ali at the family's celebrated open-house parties.

Ralph enjoyed a transatlantic lifestyle, shuttling between academic posts in London and America, while occasionally attending conferences in Communist Eastern Europe and Fidel Castro's Cuba.

However, in the dozen years since Ralph Miliband's death, their North London neighbourhood has transformed into a fashionable playground for hedge-fund millionaires and celebrities such as Jamie Oliver and Jude Law.

And the Miliband property which in 1994 was worth around £300,000 would now, according to estate agents, fetch at least £1.5million.

The four-bedroom house remained in the hands of Marion Miliband until 2004.

At this point, David Miliband offered to buy out his mother who is now 72 and brother and turn it into a family home for himself. He and Louise have a two-year-old adopted son Isaac.

Land Registry documents show that three years ago, David, 42, paid £800,000 for the property, which was independently valued to ensure that his mother and brother received a fair deal.

However this buy-out would have prompted a large tax bill for younger brother Ed, who would have had to have paid capital gains on his 20 per cent stake in the family house.

And whenever David eventually sells the property, he will also have to pay a similar capital gains tax bill to cover the period when he was not living there.

A source close to Mr Miliband said the brothers were unlikely ultimately to benefit financially from the deed of variation because any reduced inheritance tax bill would be offset by the need to pay capital gains.

A spokeswoman said: "There is no question of the Milibands avoiding inheritance tax and all taxes have been paid."

Mr Miliband is still under pressure to run for the Labour leadership when Tony Blair makes his expected resignation announcement next month.

Last week, a report by the BBC suggested that he had made his mind up not to make a challenge and this weekend he again spoke of his admiration for Mr Brown.

However, senior Blairites remain hopeful that if the Chancellor stumbles in the next few weeks, Mr Miliband can be persuaded to change his mind.

Ed Miliband, a former aide to Mr Brown and now a Cabinet Office Minister, still lives round the corner from the old family home. He recently purchased a £650,000 flat above a commercial property.

Mr Miliband, whose Government has championed 24-hour drinking, was reported to have issued an official complaint that a new off-licence open until 11pm would spoil the 'quiet enjoyment of my home'.

The Miliband family estate also includes a country cottage in Oxfordshire, which was bought by Ralph and is now believed to be owned by his widow Marion.


Memory-Hole note: Since updated at 23:30pm on 22nd April 2007, the current version of the above story omits many paragraphs including the passage reproduced above in brown

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