A painting is plant

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The taxman has lost a test case to claim capital gains tax on a £9m Old Master painting sold by the custodians of Castle Howard say Harris & Co accountants Northampton

In a ruling that Lord Justice Briggs said may be ‘surprising’ to some, the Court of Appeal found that the portrait of Omai by Sir Joshua Reynolds, which was on display at the stately home for more than 200 years was in the eyes of the law to be classed as ‘plant’ used to boost castle Howard’s business, rather than an asset on which capital gains tax (CGT) was payable.

He said that such a result was an ‘acceptable if unwelcome side-wind’ of complex tax legislation.

The portrait of a Omai, painted in 1775 by Sir Joshua Reynolds, was sold at auction by the executors of the late Lord Howard of Henderskelfe in 2001, for £9.4m. Commission and VAT totalling £220,900 was paid.

But HMRC sought to recover CGT on the painting.

Lord Justice Rimer upheld the tax tribunal’s decision that CGT did not apply, saying that if an individual had been skilful enough to acquire an iconic picture he was later able to sell for gain, he would have to pay CGT, so why should the executors be in a different position?

But he accepted the executors’ claim that the painting constituted ‘plant’ under section 44 of the Taxation of Chargeable Gains Act 1992 and as such was treated as a ‘wasting asset’ not subject to CGT.

As the painting had been displayed in a public area of Castle Howard, it was deemed part of the assets of the company that owns Castle Howard ‘for use in its trade’.

He rejected claims by David Goy QC, HMRC counsel that, while the painting was ‘plant’ in the hands of the company, this did not extend to the executors.

Lord Justice Briggs said:

‘It is surprising to those unfamiliar with the workings of capital gains tax that a famous Old Master like Omai should qualify for exemption from tax on the ground that it either “plant” or a wasting asset, with a deemed predictable life of less than 50 years.’

‘This is the occasional consequence of the working of definitions and exclusions which, while aimed successfully at one potential inroad into the charge of tax, unavoidably allow others by what the legislators appear to permit as an acceptable if unwelcome side-wind.’

Castle Howard in North Yorkshire is famous as the setting for TV’s Brideshead Revisited and the painting hung for two centuries in its Reynolds Room.

The painting is now owned by Irish stud owner, John Magnier.

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