Stately home’s old master beats taxman

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The upper tribunal has ruled that a painting by Sir Joshua Reynolds is a “wasting asset” and exempt from capital gains tax.

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

The tribunal (UKUT 129 (TCC) ruled that the famous painting of Omai, a young South Sea Islander, by Sir Joshua Reynolds that was exhibited in Castle Howard, Yorkshire, was a piece of “plant or machinery” used to boost visit numbers to the house.

Because the painting was categorised as plant or machinery capital gains tax is not payable on the painting when it was sold in auction at Sotheby’s in 2001 by the castle’s present owner, Simon Howard.

Mr Justice Morgan agreed with the owners of Castle Howard (Castle Howard Estates) that the painting was a...

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03rd Apr 2013 12:10

Root of the matter

Would the FTT have taken the alternative view if the painting had been Van Gogh's 'Sunflowers'?

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By waltere
03rd Apr 2013 14:51

Contradiction in terms, surely?

Since when has a painting by an "old master" (the clue is in the title) had "an expected life of less than 50 years"?  A bit of tat like the ones that Tracey Emin dashes off, I could understand, but surely an oil painting by Sir Joshua Reynolds could be expected to last more than half a century?  Isn't that why they used oil paint and 20 coats of varnish in the first place?

Well, I'm not a tax expert, I'm just a poor slob with insufficient money to hire the best tax lawyers in the country to avoid paying my fair share of tax.

It's a pity no one issues share certificates any more, otherwise I could buy some shares, frame the certificates, hang them on my wall, open the house to visitors and ask that nice Mr Justice Morgan to exempt me from CGT when I sell them.  Oh no, hang on, I'm not a Duke.

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03rd Apr 2013 15:56

Waltere - I get your point that it appears to pay to be able to hire 'the best tax lawyers' and thereby seemingly avoid paying what others may class as your fair share of tax but to answer your initial question on the useful life of an 'old master'; the arguement doesn't appear to hinge on the actual expected useful life of the painting rather it relies on s44(1)(c) TCGA 1992 which defines a 'wasting asset for charegable gains purposes, "plant and machinery shall in every case be regarded as having  predictable life of less than 50 years".

It appears that the lawyers acting for the painting's former owners have been able to show that the painting performed a function within the setting of the home and therefore it would qualify as an item of plant and machinery. This means that s44(1)(c) applies regardless of the actual expected useful life. Once an item is classed as wasting s45 TCGA 1992 exempts it from giving rise to a chargeable gain. Another loophole has been spotted...

I haven't read the judgement but I can only assume that although the item has been found to be plant & machinery, the owners did not use it in a trade or business which would have entitled them to make a claim to capital allowances? Doing so would appear to have excluded the item from the exemption in s45 by virtue of s45(2).

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03rd Apr 2013 15:48

Where is it now?

Has the painting by Joshua Reynolds sold by Castle Howard left the house, the county or the country?

If the country, should tax be paid?

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By waltere
03rd Apr 2013 17:05

Thanks to youngmckellar

@youngmckellar  Ever the professional (I'm just guessing, but quoting "s44(1)(c)" does strongly suggest this), you have, of course, treated this matter with the seriousness it thoroughly deserves.  Me, I have to laugh at it all otherwise I think I might cry.

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