Court of Appeal rules painting taxable as plant

A dispute over how a famous painting in a stately home should be taxed recently reached the Court of Appeal. 

The court ruled in favour of the taxpayer (The Executors of Lord Howard of Henderskelfe), who had won a case in the upper tribunal. 

The dispute is about whether a painting by Sir Joshua Reynolds is a “wasting asset” and exempt from capital gains tax.

The custodians of a stately home which featured in the BBC television series Brideshead Revisited, have been spared a tax bill on the £9.4m sale of a famous eighteenth century painting after winning the latest case.

HMRC won a case in the the first-tier tribunal, but this...

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Comments
plummy1's picture

Capital Allowances

plummy1 | | Permalink

Does this have any impact on the capital allowances rules regarding the claiming of artwork?

Up until now it has only been applicable for hotels, public houses and restaurants etc. However I am unsure whether defining the item as plant for the purposes of the 1992 TCGA would influence the meaning of the term  for capital allowances purposes. 

Any thoughts?

What am I missing?

secondhand_22 | | Permalink

I'm not sure I fully understand this case. 

If they successfully argue that the item is P&M and so is deemed to be wasting under s44(1)(c) TCGA then why wouldn't it be brought back into scope by s45(2) or s45(3)? 

I notice the intro paragraphs of the judgement says that both parties agree that s45(2) & (3) were not in point.  But if it is P&M - like a painting in a pub then why (unlike a painting in a pub) would it be ineligible for CAs so that s45(2) & (3) wouldn't bring it back into scope?

Is it because it was lent to a trading company rather than employed in the trade of the owner?  

What is it that I'm missing - I'd genuinely appreciate some help!

 

But on a non-tax point, wasn't the TV series made by ITV, not the BBC?

 

 

BKD's picture

@secondhand

BKD | | Permalink

You've identified the issue.

The point is that neither party was entitled to capital allowances - the owner because it was used for the purposes of someone else's trade, the trading company because they did not have sufficient interest in the asset. Very briefly, the case revolved around the question of whether an asset that was plant in someone else's trade could also be treated as plant (and therefore a wasting asset) in the hands of the transferor. (HMRC tried to argue that it could only be plant in the hands of the person carrying on the trade.)

Interesting

secondhand_22 | | Permalink

I see.  It sounds like an interesting debate - I will read the judgement when I get chance.

I can see HMRC's argument from the explanation you give - going right back to Yarmouth v France, whether something is plant is very contextual - it says plant is something kept for permanent employment in the business (or something like that).  So an item isn't plant just by virtue of what it is - how and why it is used is very important. 

Which leads me to think that, again, the argument is circular - if the transferor wasn't carrying on a trade that would employ a painting then it isn't plant.  But if he was, then it is plant, but then you're potentially back into CAs........

......unless a lessor wouldn't get CAs due to the informal long lease that was in place, instead the lessee would get them on the lease value of £nil (unless MV imposed)

Now we're into leases....oh dear...I need a lie down!

 

I'll read what the better legal/tax minds have been saying in the judgement rather than speculate on the issues myself...just not tonight!

Old assets    1 thanks

AndrewTall | | Permalink

Part of the issue in this case is the age of the painting - it pre-dates capital allowances (and for that matter CGT) and is manifestly not a wasting chattel as it is much older than 50 years - but most paintings are deemed not to last >50 yrs so it is deemed a chattel and the rest then follows.

On CAs and artwork, HMRC takes the hard line that only people providing ambience can claim for assets that create the ambience and ignores the various studies on workplace efficiency, white collar crime, etc that under-pin the provision of artwork in other business premises.  I've always felt it bizarre that you can claim for the costs of renting art as a W&E cost of the trade, but not get CAs on the cost of buying art.

That said there is a clear policy point in trying to stop CA creep extending the boundaries of what can be claimed so I don't expect any changes to occur voluntarily.

plummy1's picture

Has it ever been challenged?

plummy1 | | Permalink

On CAs and artwork, HMRC takes the hard line that only people providing ambience can claim for assets that create the ambience and ignores the various studies on workplace efficiency, white collar crime, etc that under-pin the provision of artwork in other business premises.  I've always felt it bizarre that you can claim for the costs of renting art as a W&E cost of the trade, but not get CAs on the cost of buying art.

Andrew,

I am aware of the legal cases which resulted in artwork being allowed in those premises where it adds to the ambience but I wondered whether it has ever been legally challenged in other types of premises? I suspect HMRC will always take a hard line where they know there is no legal precedent to support the taxpayer.

John

BKD's picture

The distinction in the CH case ...

BKD | | Permalink

... is that the artwork was doing much more than creating or enhancing the ambience of the surroundings - it was of such historical value that it was (claimed to be) actively drawing visitors to the House. Plus the fact that the display of works of art and other items is an intrinsic part of the trade being carried on.

What will be interesting to see is whether entities running their own stately home etc businesses now claim CAs.

not forward looking

geoffwolf | | Permalink

surely the reason for not claiming capital allowances on that particular painting is that on cessation the picture is unlikely to be valued at less than the value when it came into business use. It seems to me that HMRC have used the wrong argument here.

Not seen a case on it - yet    1 thanks

AndrewTall | | Permalink

plummy1 wrote:
Andrew,

I am aware of the legal cases which resulted in artwork being allowed in those premises where it adds to the ambience but I wondered whether it has ever been legally challenged in other types of premises? I suspect HMRC will always take a hard line where they know there is no legal precedent to support the taxpayer.

John

I'm aware of arguments between inspectors and taxpayers (with mixed outcomes) over such plant outside of the ambience cases but not of any court cases on the point.  That said if HMRC do move towards accepting art designed to motivate staff / discourage fraud / inspire creativity / etc as business assets then the interesting issue of whether art is excessive for that purpose and so has as its purpose the provision of a staff benefit may arise.