Wealthy families with valuable art collections on the wall will be celebrating after the Court of Appeal ruled that a Sir Joshua Reynolds masterpiece which was sold for £9.4 million at Sotheby’s was a piece of ‘plant’, used to attract visitors to one of Britain’s grandest stately homes, and was thus exempt from Capital Gains Tax (CGT).
‘Omai’, Sir Joshua’s romantic portrait of one of the first Pacific Islanders to visit Europe, was first exhibited at the Royal Academy in 1776 – the year of American independence – and for centuries graced the walls of Castle Howard. However, it was sold at auction in 2001 and the tax authorities have ever since insisted that CGT was payable on the hammer price.
However, whilst recognising that those not well versed in tax law would be ‘surprised’ by the suggestion that the painting was ‘plant’, the Court found that it was exactly that and was thus deemed by Section 44 of the Taxation of Chargeable Gains Act 1992 to be a ‘wasting asset with a predictable life not exceeding 50 years‘.
HM Revenue and Customs (HMRC) had argued that it was ludicrous to view ‘Omai’ as anything other than a world-renowned work of art and that, far from being a ‘wasting asset’, its value had never stopped increasing since Sir Joshua laid down his brushes.
However, in dismissing HMRC’s appeal against a tax tribunal’s decision, the Court found that – although the drafter of Section 44 could not have contemplated such a ‘wholly extraordinary’ set of circumstances – the provision was clear and that the tax authorities must therefore ‘take the rough with the smooth’.
Despite the enormous increase in the value of Sir Joshua’s work since the Earl of Carlisle bought it in 1796, the Court concluded that it was deemed by operation of Section 44 to have become valueless 50 years after it was first put on public display at Castle Howard in the 1950s.