The UK's Inland Revenue Service has admitted that it incorrectly said the Government agency had sold its entire portfolio of 600 properties to a UK-based company, when in fact the properties had been sold to a company based in Bermuda.

The story was first reported in UK political satire magazine Private Eye, and has since been picked up by BBC News Online and other UK news agencies.

The Inland Revenue admitted that their announcement last year that the properties had been sold or leased back from a UK company was made in error and confirmed that the deal had been signed with a firm based in Bermuda.

UK media reports have said that Chancellor Gordon Brown, who headed the tax campaign, is likely to come under pressure to explain how Britain's main tax raising agency came to sign the deal given the government's belief that havens shield companies and wealthy individuals from paying taxes in Britain.

The alleged tax dodge surfaced when, on November 5, 2000, Conservative MP Christopher Chope asked Mr. Brown: "on what date the contract between his department and Mapeley Ltd. was concluded for the strategic transfer to Mapeley Ltd. of the ownership and management of the combined estate of the Inland Revenue and HM Customs and Excise..."

Private Eye said paymaster general Dawn Primarolo - whom they labelled as tough on tax avoidance - replied on Mr. Brown's behalf and said: "The Inland Revenue and Customs and Excise are working with Mapeley to finalise the details of the STEPS (Strategic Transfer of the Estate to the Private Sector) contract."

In this answer and in a similar exchange in January 2001, Ms Primarolo did not contradict Mr. Chope's assertion that the sale of the estate was to Mapeley Ltd., a British registered company.

However, several weeks later, on March 9, 2001, the Inland Revenue issued a Press release announcing the signature of a contract to sell its buildings, and those of Customs, to Mapeley Ltd.

The release said: "Under the terms of the STEPS contract, the ownership and management of the estate transfers to Mapeley Ltd. who are required to provide the departments with serviced accommodation over 20 years."

However, the 2001 accounts of Mapeley Ltd. did not include any reference to the purchase of 600 buildings from the tax authorities or to the ownership of such a huge estate.

The accounts of another company - Mapeley Steps Contractor Ltd. - show that in the last nine months of 2001, the company received ?136 million of rents from Inland Revenue and Customs.

Although Mapeley Steps and Mapeley Steps Contractor Ltd. are both registered in Britain, the accounts say all the rent money was used for "operating costs" leaving the company with an overall loss of ?12 million, on which it pays no tax.

The company's accounts say that ?108 million of the operating costs were described as "property rentals" of which ?81 million were "master lease rentals invoiced by Mapeley Steps Ltd." revealed that the ?81 million from the "master lease rentals" went to a Mapeley Steps Ltd. which is 100 percent owned by Harbour Fiduciary Services of Wessex House. Mapeley Steps Holdings Ltd. is 100 percent owned by Harbour Fiduciary Services.

Harbour Fiduciary Services was 100 percent owned by Global Asset Management but the shares were transferred on December 6, 2001 to IFTAG Consulting SA in Tortola in the British Virgin Islands, but The Royal Gazette was unable to find out who were the beneficiaries of this BVI company.

However, other media reports have said that Mapeley Holdings, is part owned by George Soros and US investment company Fortress Investment.

The chief executive of Mapeley Steps Ltd., Robin Priest told BBC News Online that the benefits of the company's tax position would be handed back to the Government through a lower lease charge each year.

The BBC reported that Inland Revenue refused to discuss whether the payment of 81 million to Bermuda's Mapeley Steps Ltd. allowed the company to escape UK corporation tax and said the contract was likely to be scrutinised by the national audit office.