Nigel Farage bought a £1.4m property in cash shortly after receiving a £5m personal gift from the crypto billionaire, Christopher Harborne.

The revelation comes after parliament’s standards watchdog confirmed separately that the Reform UK leader was facing a formal investigation over the gift from the Thai-based businessman.

Asked about the purchase of the property, a Reform UK spokesperson said: “The relevant chronology is straightforward. The offer and purchase process for the property commenced before the gift. Mr Farage had already passed proof of funds and the relevant checks before receiving the gift. The purchase was therefore already proceeding independently of it.”

However, Labour called on the Reform leader to state in full what the £5m, which was first revealed by the Guardian, was used to pay for. Documents reported by Sky News have also been seen by the Guardian.

Anna Turley, the chair of the Labour party, said: “Nigel Farage has repeatedly dodged questions on his multimillion-pound ‘gift’. Now we can see why – this totally stinks. Farage must urgently come clean with the public as to what this £5m was used for and why he failed to declare it.

“The facts are simple. Farage took £5m from a crypto billionaire, tried to cover it up, and bought an expensive house after taking the money. Not only that, he promised to cut taxes on crypto transactions. It’s open and shut conflict of interest.”

Hours earlier, the Reform leader’s name was published on the website of the parliamentary commissioner for standards, which states he is being investigated over an alleged “failure to declare an interest”.

The inquiry was opened on Wednesday, according to the entry, which confirms he is being investigated under rule 5 of the code of conduct for MPs.

Farage has said the gift was intended to cover his personal security costs and therefore did not need to be declared. However, other parties argue that the money from the Thailand-based businessman falls within rules requiring MPs to declare any potentially relevant gifts or donations received in the 12 months before entering parliament.

Rule 5 of the code of conduct obliges MPs to “fulfil conscientiously” requirements relating to their registration of interests. It states that new MPs must register all their current financial interests, and any registrable benefits (other than earnings) received in the 12 months before their election. This must be done within one month of their election, and they must register any change in those registrable interests within 28 days.

Some personal gifts are exempt from the reporting rules if they “could not reasonably be thought by others to be related to membership of the house or to the member’s parliamentary or political activities”, according to the code of conduct and rules for MPs. The rules state: “Both the possible motive of the giver and the use to which the gift is to be put should be considered. If there is any doubt, the benefit should be registered.”

Farage is one of five MPs who are currently the focus of ongoing investigations by the standards watchdog, although he is the only one being investigated under rule five.

If the investigation finds Farage committed a particularly serious breach of parliamentary declaration rules, he could be suspended from the Commons. A suspension of 10 days or more could trigger a recall petition, potentially forcing him to fight again for his Clacton seat.