Weekly Tax Update - Monday 24 March 2014

1 General news

1.1 Budget 2014

Smith & Williamson's 2014 Budget commentary and a 2014/15 tax rate card are available to download from our website:

link to the commentary booklet: www.smith.williamson.co.uk/uploads/publications/budget-report-2014.pdf

link to the Tax Rate Card: www.smith.williamson.co.uk/uploads/publications/tax-rate-card-2014.pdf

2 Private client

2.1 Painting treated as plant, so CGT exempt

The Court of Appeal has upheld the decision of the Upper Tax Tribunal, finding in favour of the taxpayers, the executors of Lord Howard of Henderskelfe (deceased). This confirmed that a painting owned by the Executors of Lord Howard, but used by a company in its trade at Castle Howard, fell to be treated as plant and as such it was exempt from capital gains tax in the hands of the Executors.

This decision could have significant effects for owners of art and other chattels used in a business such as a stately home or for owners of significant art collections who consider allowing a business to use the art or chattels in their trade. Computations may need to be revisited where the exemption under TCGA 1992 s.45 has not been considered. Points of Interest

TCGA 1992 s.45 states that capital gains tax is not due on wasting assets, although there are exceptions under s.45 (2) and (3), eg this doesn't apply to assets that are used solely for the purpose of a trade, profession or vocation from the time of acquisition to disposal. However the Court of appeal accepted that s.45 (2) and (3) did not apply to the case, so the exemption from CGT for wasting assets applied. TCGA 1992 s.44 defines a wasting asset as an asset with a predictable life of less than 50 years. Plant and machinery is deemed in s.44(1)(c) to always have a predicable life of less than 50 years. The case relied on the classic explanation of plant, which is to be found in Yarmouth v. France (1887) 19 QBD 647, i.e. 'whatever apparatus is used by a business man 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 his business'. The Court of Appeal judges agreed that the painting was plant as the interest in the asset had a sufficient degree of permanence and it was used in the company's trade. HMRC had tried to argue that the executors, rather than the company, sold the painting and that as the executors were not trading they could not claim that the asset was plant. This assertion was rejected as TCGA 1992 s.44 did not impose the limitation that plant and machinery can only be subject to the exemption in TCGA s.45(1) if the disposal of the plant was by the trader who used the plant. The decision confirms that plant and machinery is to be regarded as having a useful life of less than 50 years and is therefore a wasting asset and is not affected by the fact that its useful life may be longer in reality and it may appreciate in value (as was the case here). It was acknowledged that the legislation inevitably raises potential difficulties in, for example, a case in which there is a significant delay between the use of the plant in a trade and the disposal. The legislation does not provide for any apportionment in such situations. However, it was decided that provided there is no significant gap between use as plant and sale, the CGT exemption is still available. www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2014/278.html&query=henderskelfe&method=boolean

2.2 HMRC's view of the tax treatment of venture capital schemes

1. Following recent press reports of HMRC's withdrawal of VCT status from Oxford Technologies, which had exceeded the 15% maximum holding it could retain in an AIM listed vaccine company, HMRC has issued a note setting out its view of the tax treatment of venture capital...