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£10m masterpiece qualifies as ‘plant and machinery’, tribunal rules

A MASTERPIECE by Sir Joshua Reynolds at the centre of a tax tussle may be treated as ‘plant and machinery’ by its custodians at Howard Castle in Yorkshire, therefore exempting it from capital gains tax, a tribunal has ruled.

HMRC had been looking to levy capital gains tax on the £9.4m hammer price of ‘Omai’, a portrait depicting one of the first Pacific Islanders to visit Europe which had hung on the walls of the castle and was sold by Simon Howard.

The picture, part of the estate of George Howard, has seen his executors battling HM Revenue & Customs through the tax tribunals.

The executors argued the painting should be treated as plant and machinery in that it had been part of the running of the house and attracted visitors to Howard Castle.

The decision by the Royal Courts of Justice means no tax is payable on its sale at Sotheby’s more than ten years ago, with Mr Justice Morgan accepting the piece should be viewed as “functional apparatus” and a “wasting asset” that, at least in theory, became worthless 50 years after it was put on public display in the 1950s, even though its value has in fact appreciated since then.

Technical manager at Portal Tax Claims Jeanette Edmiston said: “The ruling might shock art lovers but in fact it is not surprising. There is a precedent in tax law for paintings and sculptures being deemed ‘plant and machinery’ used within a business, for instance if they contribute to creating the desired ambiance within a restaurant or bring visitors to a particular attraction – as in the case of the Omai, the Howard Castle.

“This ruling should be a wake-up call for businesses up and down the land. Your expenditure on art on your walls or indeed sophisticated lighting systems used to showcase the work to its best advantage could well give you a sizeable tax claim to make.”

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