Nigel Farage has said he will resign as the MP for Clacton, and fight the resulting byelection, as scrutiny over his finances continues.

The Reform UK leader revealed that he was under a second investigation by the parliamentary standards watchdog over undeclared gifts.

Why is Farage standing down?

Farage has been the subject of a standards inquiry after he did not make public a £5m gift from the crypto billionaire Christopher Harborne before the last election, as revealed by the Guardian in April.

He said on Tuesday there was now another inquiry over allegations that he was financially supported by the crypto gambler and convicted fraudster George Cottrell, who is a close friend.

In May the parliamentary standards watchdog opened a formal investigation over the £5m gift.

If the investigation were to find Farage had committed a particularly serious breach of parliamentary declaration rules, he could have faced suspension from the Commons. A suspension of 10 days or more could have triggered a recall petition, potentially forcing him to fight for his Clacton seat at a time of someone else’s choosing.

In his statement, Farage said he had taken the decision to force a byelection to let “the people of Clacton … be the judges of my actions”.

Why is Farage being investigated by the parliamentary standards watchdog?

Farage is facing a formal investigation by the parliamentary standards watchdog over the £5m gift from Harborne.

The Reform leader received the money weeks before announcing he would stand as a candidate in the 2024 general election.

New MPs are required to declare interests covering the period up to a year before their election. Farage said in April the gift was intended to cover his personal security costs and therefore did not need to be declared. In June, when asked what had happened to the money, he said it was an “unconditional gift” that he could spend how he wanted.

“I can spend it on Ferraris if I want. That’d be entirely up to me,” he said on LBC, adding: “I can do what I want with it. I can put it on the horses.”

Other parties argued that the money from the Thailand-based businessman fell within the rules requiring MPs to declare any potentially relevant gifts or donations received in the 12 months before entering parliament.

Daniel Greenberg, the parliamentary commissioner for standards, is understood to have begun an investigation under rule 5 of the code of conduct obliging MPs to “fulfil conscientiously” requirements relating to their registration of interests.

What happens to the watchdog's investigation now?

As Farage will no longer be an MP the investigation into the £5m gift from Harborne will be paused during the byelection.

But the Commons standards committee’s code of conduct procedural protocol is clear that if an MP stands down while an inquiry is under way and is then re-elected, the inquiry can be reactivated.

If Farage is not re-elected, the commissioner can still carry on the investigation if they “decide if it is appropriate and proportionate to resume”.

It is possible that Farage could win a byelection only to face another recall byelection a few months later.

What further allegations is Farage facing?

On Tuesday, Farage revealed he was also facing an additional inquiry over allegations that he was financially supported by the crypto gambler and convicted fraudster George Cottrell, who is a close friend.

At the start of July the Sunday Times reported that Cottrell’s support included security and social media staff who worked on Farage’s online content in the year before he was elected. It also reported that Farage used a property rented by Cottrell near Buckingham Palace. Farage responded by saying he had “done no wrongdoing” after it emerged he did not declare the benefits provided by Cottrell.

In 2016 Cottrell was charged with 21 offences for his alleged role in a “dark money” laundering scheme. He pleaded guilty to one charge of wire fraud and spent time in prison in Arizona, though he is seeking a pardon from Donald Trump.

Reform and Cottrell’s lawyers have previously said Cottrell “is an unpaid volunteer with no formal role at Reform UK, like many thousands of party members”. Labour has called on Farage to clarify his “personal and financial dependence” on Cottrell, who has also been supporting the politician’s lifestyle.

When will the byelection be held and can Farage win?

Until the writ is moved to formally trigger the byelection, we do not know when it will take place, but is likely to happen some time between early and mid-August.

Sky News is reporting that the byelection could be held in early September. As the party that holds the seat, Reform UK gets to choose.

Many political experts would expect Farage to win in Clacton. The Reform leader got a healthy majority of 8,405 in the 2024 general election, receiving 46.2% of the vote share. In the last year his party has consistently been ahead in the polls.

But much will depend on if investigations into Farage’s finances have cut through in Clacton and damaged his local appeal, as well as how political rivals decide to contest the byelection. Tactical voting is likely to play a part and he could see his majority reduced.

In July, nationwide polling by Ipsos gave Farage a 26% satisfaction rating, but 63% of those questioned disapproved of him.