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Lord Howard executors gain final victory in CGT dispute over Reynolds masterpiece

Monday, 19 January, 2015

HM Revenue and Customs has been refused leave to appeal to the Supreme Court following its defeat in the case of Lord Howard of Henderskelfe in March 2014.

The case concerned a Joshua Reynolds painting, Omai, which had belonged to the Howard estate since the late 18th century. From the 1950s the painting has been on display to the public at the family home, Castle Howard, where it is a major visitor attraction.

In 2001, the executors of the late Lord Howard of Henderskelfe, sold the painting for GBP9.4 million at a Sotheby's auction. HMRC attempted to charge capital gains tax (CGT) on the disposal, but his executors pointed out that the painting had been on long-term loan to the Howard family's stately home business, where it acted as plant and machinery. It was thus a depreciating asset exempt from CGT.

The executors' argument was rejected at the First-tier Tax Tribunal, but later accepted at the Upper Tribunal.

HMRC took the case to the England and Wales Court of Appeal in March last year, but lost again.

Fearing that other country estates will use the same argument, HM Revenue and Customs applied to the Supreme Court. HMRC cited the fact that the painting was not used as plant by the estate itself but by its operating company. However, the Supreme Court under Lord Neuberger considered that this was an arguable point of law against the Appeal Court's decision and refused leave to appeal (HMRC v Executors of Lord Howard of Henderskelfe (deceased), UKSC 2014 0123).

That decision thus now stands as a precedent available to landed estates with similar assets.