The Castle Howard in London possesses a specific painting that has been the subject of a nearly 12 year long battle over capital gains taxes. The painting is entitled Omai and is a romantic portrait of one of the first Pacific Islanders to visit Europe as painted by Sir Joshua Reynolds. It is considered to be Mr. Reynolds’ finest work and has been a constant fixture on the walls of Castle Howard for centuries.
However, in 2001 the painting was sold to fund the divorce of Simon and Annette Howard. The government feels that the piece of artwork should be subject to capital gains tax, as would be true for the sale of most any valuable piece of property. However, the lawyers of the estate claim that the artwork is a part of the estate and an essential draw for visitors to Castle Howard. Thus they feel that it should be considered a “plant” used in the running of the house as a business and should thereby be exempt from the tax levy.
Her Majesty’s government lawyers are fighting against the executors, but not much headway has been made. This decision, however, could be a vital one to many other wealthy “landed” families with valuable collections that are attempting to shield their assets from taxes. If items considered pertinent to the running of the household as a viable business are declared free from capital gains tax, it would make many of these families very pleased indeed.
The government lawyers do have a strong case however, especially because, as they recently pointed out in court, the sale of the artwork did not affect the number of visitors to Castle Howard. In fact, the number of visitors has actually increased by approximately 10% in the years after its sale. It seems the executors may have a difficult time proving the painting as an essential part of the home’s business with those statistics.
Only time will time how the judge will decide in the case. But this verdict could affect many families in England and will be a major decision in interpreting their tax laws.
One way to avoid a step up in basis for capital gains taxes here in Arizona and New Mexico is to create a Living Trust. This is a vital step in helping you or your beneficiaries to avoid paying those additional taxes. For more information, contact our offices today at 888.222.1328 for a free consultation with an MH estate planning attorney.
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