The row emerged after Mr Mandelson's estate agent claimed that although he had paid more than pounds 250,000 for the flat in London's Notting Hill, the sum on the contract was lower to escape higher tax. All homes worth more than a quarter of a million pounds are liable to a higher rate of stamp duty and the two-bedroom flat had been priced on the contract at pounds 249,000.
James Dodds, of Marsh and Parsons, said an extra sum was paid by "apportioning" a separate amount for fixtures and fittings, but admitted he did not know how it had been done.
The estate agent said the arrangement, which may have saved the former Trade and Industry Secretary pounds 3,760 in stamp duty, was perfectly "legitimate".
Allies of Mr Mandelson, who is on holiday in Brazil, also insisted yesterday that he had done nothing wrong, pointing out he had paid an extra sum to cover refurbishment of the property.
"After Peter's offer had been accepted, inquiries revealed that pounds 40,000 worth of work was required to the roof and common parts," said one. "Peter had to pay pounds 10,000 of this and as a result of this extra work a price reduction was negotiated by Marsh and Parsons."But with the former Labour spin doctor reportedly keen to take up the post of Defence Secretary, the Tories seized on the controversy last night.
Francis Maude, the Shadow Chancellor, said Mr Mandelson should explain exactly how he had narrowly avoided the stamp duty due on homes worth more than pounds 250,000.
"People will be outraged by Peter Mandelson's hypocrisy," he said. "He was Blair's right hand man while stamp duty was raised in every Labour budget since they were elected.
"Labour ministers think high taxes are for everyone else but not for them. It seems there is one rule for Labour ministers and another for the rest of us."
Mr Mandelson was forced to sell his previous home after it was revealed he had bought it using a pounds 373,000 loan from former Paymaster-general Geoffrey Robinson. Both men were forced to resign over the affair.
Mr Robinson was himself facing fresh embarrassment yesterday when it was reported that he had paid pounds 250,000 to help fund Tony Blair's private office in opposition.
David Heathcoat-Amory, Shadow Chief Secretary to the Treasury, said: "These new revelations have shown there are many important questions that still need to be answered about Mr Robinson's financial relationship with the Labour leadership.
"Mr Robinson needs to make a full disclosure as to the full extent of his bankrolling of Tony Blair and Gordon Brown's offices and what if anything he got in return."Reuse content