A FAMOUS portrait by Sir Joshua Reynolds which graced the walls of one of Yorkshire’s grandest stately homes until its sale for £9.4 million is exempt from capital gains tax because it was a “wasting asset”, a court has ruled.
The hammer price achieved by the executors of former BBC chairman Lord Howard at Sotheby’s in November 2001 for the picture of Omai, a South Sea islander, represented a substantial gain over its value at the time of his death 17 years before.
But yesterday, following a long-running legal battle, the taxman lost a claim the sale, carried out in part to fund the divorce of Lord Howard’s son Simon, should be subject to capital gains tax as three Court of Appeal judges ruled in favour of his estate’s executors.
The executors argued that, although the picture, painted around 1775, was a valuable asset that was likely to, and did, increase in value, it was deemed to be a “wasting asset with a predictable life not exceeding 50 years”.
That was because during Lord Howard’s lifetime, and after his death until the sale, it had been exhibited at his home at Castle Howard in North Yorkshire which was open to the public.
Since 1950, Castle Howard has been owned and its opening run by Castle Howard Estate Limited and the executors said that, in the circumstances, the picture was “plant” within the meaning of the Taxation of Chargeable Gains Act and thus a “wasting asset” .
Lord Justice Rimer said there was no error of law in the conclusion that the company had sufficient interest in the picture for it to qualify as plant and once an item qualified as such, it was deemed to be a wasting asset.
Lord Justice Briggs said that it would probably be surprising to those unfamiliar with the workings of capital gains tax that a famous Old Master should qualify for exemption.
“But this is the occasional consequence of the working of definitions and exclusions which, while aimed successfully at one potential inroad into the charge to tax, unavoidably allow others by what the legislators appear to permit as an acceptable if unwelcome sidewind,” he said.
The portrait, depicting one of the first Pacific Islanders to visit Europe, was first exhibited at the Royal Academy in 1776 - the year of American independence. It was part of the estate of politician, soldier and BBC chairman Lord Howard, who died in 1984.