Painting Or Plant?

On 19 March 2014, the England and Wales Court of Appeal handed down its judgment in HMRC v The Executors of Lord Howard of Henderskelfe [2014] EWCA Civ 278, a 'wholly extraordinary' case concerning the wasting asset exemption for capital gains tax (CGT) purposes.

The case

The asset in question was an 'old master' painting by Sir Joshua Reynolds, Portrait of Omai, depicting a Pacific Islander brought to England by Captain Cook. It had been owned by the Howard family and kept at Castle Howard since 1796, but, on 29 November 2001, the executors of the late Lord Howard of Henderskelfe sold it for GBP9.4 million, triggering a substantial capital gain. The executors claimed an exemption from CGT under s45 Taxation of Chargeable Gains Act 1992 (TCGA 1992) on the basis that the painting was 'plant and machinery' and consequently a 'wasting asset' within the meaning of s44(1)(c) TCGA 1992, which HMRC denied. The First-tier Tribunal agreed with HMRC, but the executors