This article is taken from Paul Howcroft’s blog Art Law London.
A judge hearing a tax case has held that Sir Joshua Reynolds’ painting Omai can be categorised as plant and machinery, as defined by the Taxation of Chargeable Gains Act 1992, and so is exempt from capital gains tax.
The painting was on display at one of England’s grandest stately homes, Castle Howard, which is open to the public, and was said to be integral to the running of the house as a business. It could therefore be treated as “apparatus” and in the circumstances the Act makes it clear that it is “deemed” to be a wasting asset that became worthless after 50 years of its acquisition by the business. If something is “deemed” in law, then court must pretend it to be true, even if it is obviously not.
I’m sure this will be welcome news in the many stately homes that are run as businesses. On the other hand, it will certainly not be welcome at HM Treasury, and I predict that the Act will be amended. Until that happens, we might now see more valuable works put on the market, or changing hands to crystallise untaxable gains.
Paul Howcroft, Partner, Fladgate LLP (firstname.lastname@example.org)