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Sir Joshua Reynolds’ Masterpiece a ‘Wasting Asset’

The latest custodians of one of Britain’s best loved stately homes have triumphed in their fight to avoid capital gains tax on the £9.4m sale of a painting which many view as Sir Joshua Reynolds’ greatest masterpiece. The Upper Tribunal ruled that the painting should be viewed as ‘machinery or plant’ within the meaning of section 44 of the Taxation of Chargeable Gains Act 1992 and was thus deemed to be a ‘wasting asset’.

‘Omai’, Sir Joshua’s romantic portrait of one of the first South Pacific Islanders to visit Europe, was first exhibited at the Royal Academy in 1776 and for centuries graced the walls of Castle Howard in North Yorkshire. The painting, which was part of the estate of politician, soldier and erstwhile Chairman of the BBC’s Board of Governors, Sir George Howard, was sold at Sotheby’s in 2001.

The executors argued that, as the painting was one of the main draws for visitors to the stately home, it should be categorised as plant or machinery used in the running the house as a business and thus exempted from capital gains tax. It was submitted that, on a correct interpretation of the act, the painting was a wasting asset that became worthless, at least for tax purposes, 50 years after it was placed on public display in the 1950s.

Her Majesty’s Revenue and Customs argued that, although ‘Omai’ was ‘no doubt greatly admired by visitors’, its sale did not lead to any falling off in visitor numbers. However, Mr Justice Morgan accepted the executors’ plea that the painting was part of the ‘functional apparatus’ used in the management of the estate and that no capital gains tax was payable on its sale.

“I accept that there is something surprising in holding that an asset of high value, and one liable to appreciate in value, with a predicted life of more than 50 years, was a wasting asset”, the judge observed. But he nevertheless ruled the wording of the act was clear and meant the painting was deemed to be a wasting asset ‘even though it would not otherwise be thought of’ as such.