How do you convert a £9.4m Old Master painting into a capital gains tax-exempted “wasting asset”?
The answer could be: put it in a business
where it forms an essential part of their trade, and argue with
HMRC that it is "plant", so that when you come to dispose of it
later, it is protected from a levy under the Taxation of Chargeable
Gains Act 1992.
The legitimacy of this position was at the
heart of the debate in The Executors of Lord Howard of
Henderskelfe (Deceased) v The Commissioner of Her Majesty's Revenue
and Customs, an appeal hearing that had to decide whether Sir
Joshua Reynolds' masterpiece, the late 18th century oil portrait of
Omai, should be subject to a large tax bill or not.
In essence, the executors of the estate had
to prove that the painting had been an essential part of the trade
of Castle Howard Estate Ltd, the company which owned the castle,
that the painting fitted the definition of "plant" and that the
painting retained this status when disposed of by Lord Howard's
estate. If so, it then became CGT exempt.
ATG legal columnist Milton Silverman of law
firm Streathers and his colleague, Tax Trusts and Heritage partner
Michael Lindley, have assessed the case on page 56 of this week's
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