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July 1, 2013
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Castle Howard - Painting is Deemed to be Wasting Asset for Tax Purposes

This case centres around whether a painting, which hung in Castle Howard, was plant and thus deemed to be a "wasting asset" for capital gains tax purposes.

The painting was on show to the public who paid to visit and look around the castle. The painting was sold by the estate in 2001 for circa £10m and if it were deemed to be a wasting asset no capital gains tax would be payable by the estate on its sale.

The term 'plant' is not defined in statute and therefore needs to be interpreted in light of case law which has found that "in its ordinary sense it (that is, plant) includes whatever apparatus is used by a businessman for carrying on his business - not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in the business.ttute In its ordinary sense it (that is, plant) includes whatever apparatus is used by a businessman for carrying on his business - not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in the business." (Yarmouth v France).

A key issue in determining whether the painiting fell within the definition of plant was whether there is any requirement for the asset to be owned by the same person that carried on the business in which it was used.

The Executors of Lord Howard of Henderskelfe (dec'd)'s estate appealed an earlier decision of the First Tier Tribunal that the painting was not deemed to be a wasting asset and was the estate was therefore liable to acpital gains tax on the disposal.

The appeal was upheld earlier this year by the Upper Tier Tribunal [UKUT 129] on the following grounds:-

- The painting was plant because in relation to key statute such as Yarmouth v France, it was used by the business (of opening the castle to the public) as a chattel kept for permanent employment in his business.

- Even though the painting was not owned by the company that ran the business (it was loaned informally to it), there was no test in relation to ownership in considering whether plant is deemed a wasting assets (TCGA s44(1)(c).

On holding that the disposal was not subject to capital gains tax the Tribunal did comment that the decision could lead to intentional tax avoidance if similar informal loan arrangements are utilised in other cases.  HMRC had stipulated their intention to change the law if they lost their case and at present we are unaware as to whether HMRC will appeal.

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