Budget 2015: Government closes tax loophole on loaned art

Budget 2015: Government closes tax loophole

Dermot Callinan, Tax Partner, UK head of Private Client, commenting on the Chancellor’s announcement in today’s Budget announcing a change in the law concerning the loaning of art and Capital Gains Tax

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Commenting on the Chancellor’s announcement in today’s Budget announcing a change in the law concerning the loaning of art and Capital Gains Tax, Dermot Callinan, Tax Partner, UK head of Private Client, said:

“The Budget today announced a change in the law concerning a little known provision that has kept HMRC away from collecting millions of pounds of tax relating to the sale of loaned art.

“In 2014, there was a relatively unknown Supreme Court Decision in the case of the Estate of Lord Howard of Hederskelfe. The case involved the most unlikely of “wasting assets”  – a painting by Joshua Reynolds called 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 Castle Howard the family estate, where it is open to the public.

“In 2001, the executors of the late Lord Howard, sold the painting for just under £10m at 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 family’s stately home business, where it acted as plant and machinery. It was thus a “wasting asset” exempt from CGT. The executors’ argument was rejected at the Tax Tribunal, but later accepted. 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, and some collectors have since loaned art for similar reasons, HM Revenue and Customs applied to the Supreme Court. The Court concluded 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 Supreme Court decision left HMRC with no other option but to recommend a change in the law to correct the loophole and hence the announcement today that gains accruing  on wasting assets after 6 April 2015 will no longer benefit from CGT exemption.

“It will be a pity if this results in fewer art works on public display in the UK, but it was a perhaps esoteric point of law that needed to be corrected.”

 -ENDS-

 

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Chancellor’s Budget 2015

 

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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