Duncan Lewis

Could sale proceeds of national treasure be subject to tax?

Date: (11 December 2012)    |    

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A Joshua Reynolds masterpiece which has been sold by Simon Howard the owner of Castle Howard is in a battle to avoid tax on the sale.
Omai, a romantic portrait of one of the first Pacific Islanders to visit Europe, has been viewed as Sir Joshua’s finest work and is even recognised as a national treasure.
For centuries, the painting graced the walls of the stately home until it was sold by Simon Howard, whose family has lived at the house since it was built in the 18th Century.
The sale at Sotheby’s in 2001 made it the second-most expensive British picture ever sold at auction at the time, going for six and a half times the previous £1.6m record for a work by the artist.
Omai was part of the estate of soldier and former chairman of the BBC’s board of governors, George Howard, who became Lord Howard of Henderskelfe a year before his death in 1984.
The executors have been on a row with the tax authorities over whether the hammer price of £9.4m should be subject to capital gains tax.
The executors, including Simon Howard, have been arguing that the painting was an essential draw for visitors to Castle Howard and so should be viewed as “plant” used in running the house as a business and thus exempted from the tax levy.
Probate lawyers looking after the affairs of taxation of the castle Howard submit that the painting was a “wasting asset” and a piece of “apparatus” that should, at least in tax terms, have been seen as valueless 50 years after it was placed on public display in the 1950s.
The dispute over whether the £9.4m should be exempted from capital gains tax made its way to the Royal Courts of Justice in London last week where lawyers for Her Majesty’s Revenue and Customs are fighting the executors every inch of the way.
George Howard lent Omai to the estate company that has owned Castle Howard since 1952 and the executors’ QC, William Massey, said Sir Joshua’s work was a major attraction that drew in visitors. Without it, and other works of art from the baron’s collection, he argued the stately home would have been unviable.
A tax tribunal dismissed those arguments last year saying that its sale had no way diminished the numbers of visitors which had in fact increased by ten percent in later years. The tribunal also said that the painting was only loaned to the company on an informal basis and it could have been asked for any time by the baron.
Asking judge Mr Justice Morgan to overturn that decision at the Upper Tribunal, Mr Massey insisted Omai was part of the “functional apparatus” used by the company in its visitors trade and should be viewed as “plant” under section 44 of the Taxation and Chargeable Gains Act 1992.