London: A Tory minister avoided paying tax by using an offshore company to buy his holiday home, the Daily Telegraph has claimed.

Stephen Hammond, a junior transport minister, used a company based in Gibraltar to buy his family’s £500,000 (Dh2.9million) villa in Portugal.

By not owning the villa directly, he reduced his tax bill in both Britain and Portugal.

A tax specialist told the Daily Telegraph that Hammond would have been able to avoid a “big hit of capital gains tax”.

The prime minister has attacked tax avoidance and George Osborne, the chancellor, described the practice as “morally repugnant”.

The Telegraph said Hammond bought a villa in Algarve through a company called Peal Gas Limited. The minister told the paper he was behind the offshore firm that owns the family’s second home.

A spokesman for Hammond said in a statement: “Mr Hammond has always paid the correct amount of tax in the UK. Mr Hammond has had no personal tax liability overseas.”

Peal Gas was set up in Gibraltar in April 1997. Hammond bought the company, which already owned the property, in 2002. In 2005, Portugal changed its tax rules so that the annual property tax for homes owned through companies registered in Gibraltar rose to 5 percentage.

If Hammond has transferred the property into his own name at this point he would have been liable for capital gains tax on the increase on the value of the property since it would technically have been classed as a sale.

Instead, in December 2005, he moved the company to Delaware, a US state not covered by the Portuguese rules.

Experts estimate this decision could have saved him about 20,000 in British tax because such villas rose in value by about 100,000 during this period.

Peal Gas was registered in Gibraltar until the new company was set up in Delaware. The company’s registered agent is the Corporation Trust Company in Wilmington, where more than 285,000 separate businesses are registered. The Telegraph believes this allowed Hammond to avoid capital gains tax in Britain, which would be levied at 28 percentage.

Hammond was elected MP for Wimbledon in 2005 and became a minister last year. His villa in Vale de Lobo has four bedrooms and a swimming pool. It can be rented out for up to 2,425 per month.