Tory grandee will repay thousands for servants' wing

In another huge embarrassment to Tory leader David Cameron, Sir John admitted it was a mistake to have used public funds to pay the mortgage interest and council tax on his staff quarters.

He may also pay capital gains tax on the sale of the six-bedroom residence, with a swimming pool, though he denied the profit he had made was a reported £600,000.

His case will reinforce the view among many voters that senior Tories have been living a lavish lifestyle using taxpayers' money.

It comes after the furores over Sir Peter Viggers' "duck island", Douglas Hogg's moat cleaning and the inspection of hundreds of trees at Anthony Steen's "Balmoral-style" country house.

Bournemouth West MP Sir John, 68, used the second home allowance to claim tens of thousands of pounds over seven years for his country house, near Woking, reportedly including about £17,000 towards the staff quarters.

"The one mistake I made was that in claiming interest on the home, I didn't separate from that the value of the servants, or the staff wing," he told BBC2's Newsnight. "And I claimed the whole of that and the whole of the council tax relating to that."

He added: "I cleared that with the fees office at the time. I wasn't told I needed to separate out the part of the house that was being occupied by my gardener and his wife from the whole house.

"I understand now that I should have done that.

"I will immediately take steps to repay any cost of council tax that relates to those quarters and any element of interest that relates to that part of it as well."

At the time he designated a small Bournemouth flat, bought for £56,000, as his "main residence" for the purposes of Commons expenses.

But when he sold the country house for £1.2million in 2005, he informed HM Revenue & Customs that it was his main home and therefore exempt from capital gains tax, according to the Daily Telegraph.

The property reportedly doubled in value while the taxpayer was handing over up to £1,778 a month towards interest on the mortgage. People usually have to pay capital gains tax of 40 per cent on the sale of second homes.

However, Sir John, treasurer of the 1922 committee of Tory backbenchers, said he had spent up to £500,000 of his own money transforming the house "from a wreck" - so any capital gain would have been "minimal", with one report putting it at about £100,000.

The veteran MP is prepared to re-examine the transaction, according to the BBC, and if he had made a profit to repay an "appropriate amount", which one estimate put at about £40,000.

Asked why he had not paid CGT, Sir John said: "It seemed to me that that was the house I had in order for me to get to London, so it wasn't unreasonable for me to use it as my second home.

"It was always the larger property so I told the Inland Revenue it was my main home."

Asked whether he believed he had done anything morally unacceptable, he said: "I don't think it is unacceptable because I think that I've been misrepresented in what I did."

Sir John is understood to have discussed his claims with Mr Cameron's scrutiny panel and agreed to repay £20,000, including £3,000 for work on his Bournemouth flat.

An MP since 1983, he was knighted in 2003 for services to Parliament and was already due to stand down at the next election.

He is believed to have used money from the sale of the Woking house to buy an £880,000 London town house.