HMRC v The Executors of Lord Henderskelfe (2014)
The case concerned a portrait of significant value which had been exhibited at Castle Howard. The painting, which had been owned by a limited company, had opened the historic castle to the public. Approximately 17 years after the death of Lord Howard, his executors sold the painting for £9.4million, realising a substantial gain.
Having argued that the gain was exempt from Capital Gains Tax (CGT) due to the fact that it fell within the technical legal definition of a ‘wasting asset’ (i.e. an asset with a predictable life not exceeding 50 years), their claim was rejected by the First Tier Tax Tribunal but upheld by the Upper Tribunal. When HMRC appealed to the Court of Appeal, they did not argue that the painting was not a wasting asset, but instead that Lord Howard’s executors could not take advantage of the CGT exemption because they themselves had not actually used it in trade.
The Court of Appeal rejected this appeal on the grounds that there was nothing in the legislation to say that the individual benefitting from the exemption had to be the person who had actually used the asset in trade.
It seems bizarre that a valuable old masterpiece was treated as a ‘wasting asset’ despite the fact that it was clearly already much older than that. This is because the law states that ‘plant and machinery’ always has a life of less than 50 years – and because the painting was an asset ‘used in trade’, it is classified as ‘plant’.