The MP for Wimbledon has launched legal action against a newspaper after it accused him of using an offshore company to avoid tax on his second home.

MP Stephen Hammond used Gibraltar based company Peal Gas, in which he has registered shares, to purchase his family’s home in Portugal in 2002.

In 2005 Portugal’s tax laws changed and the same year Peal Gas relocated to the US state of Delaware which, the Daily Telegraph claimed on Saturday, would have allowed Mr Hammond to avoid thousands of pounds of tax payments.

Mr Hammond has branded the article "wrong, factually inaccurate and malicious" asserting that while Peal Gas is registered in Delaware, it is still subject to Portuguese fiscal law - as confirmed in the member's financial interests register - adding that he has always paid the correct amount of tax both in the UK and overseas.

In a statement he said: "Three years before I became a Member of Parliament, my wife and I bought a holiday home in Portugal.

"As was usual in this part of Portugal, the property was held in an offshore company and we had to buy it this way. "In 2005 Portugal made changes to their tax law.

"We took expert legal advice in Portugal and decided to keep our existing arrangement but have a fiscal representative in Portugal.

"What this means is that we complete a tax return and pay tax every year in Portugal.

"If we sell the house we will pay Capital Gains Tax in the UK at UK rates but this is not payable until we sell."

The transport minister is now in talks with lawyers and is seeking an apology from the Daily Telegraph.