In what some might view as a 'perverse' result, the Court of Appeal has ruled that the famous painting of 'Omai' by Sir Joshua Reynolds is exempt from CGT – despite it selling for £9.4m in 2001.
The case revolved around whether the painting was 'plant' and, if so, whether it should be regarded as a 'wasting asset' and therefore be exempt from CGT.
The painting was owned by the late Lord Howard and later by his executors. It was exhibited at Castle Howard, both before and after Lord Howard's death. The house – which was made famous as a film location for Brideshead Revisited – was owned by a company that operated a 'house opening' business and exhibited various works of art, including the Omai.
The executors successfully argued that the painting was plant within the definition provided in an 1887 case (Yarmouth v France). In addition and, most importantly, for the wasting asset rules, the Court of Appeal has confirmed that the painting was plant even though it was used by another entity, i.e. the operating company, which did not own the painting.
HMRC may well seek permission to appeal to the Supreme Court or the Government may change the law to block similar claims in the future. At present, however, it appears that an opportunity to exempt chattel disposals is available, subject to similar circumstances. Therefore owners of valuable chattels that are on display in house opening businesses, operated by another entity, should review any recent sales of chattels and consider making the appropriate claims to HMRC. Meanwhile, as the court said, HMRC must "take the rough with the smooth".
We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
