Tax and National Heritage – Selling Off the Family Silver: The Advantages of Sale by Private Treaty

Author | Moira McMillan of Chiene + Tait | June 2015

Much of our national heritage remains in private ownership and tax privileges have existed for over 120 years to encourage the continued private ownership of assets such as books, paintings and other works of art deemed to be of national, scientific or historic interest.  These tax privileges do, however, come with strings attached.

HM Revenue & Customs (HMRC) allow certain exemptions from inheritance tax (IHT) and capital gains tax (CGT) to encourage owners to “retain and care for our heritage”.  For example, there will be no IHT liability when a qualifying asset is passed down a generation on the death of the owner, provided the new owner agrees to meet the conditions set out by HMRC.  Generally, the aim is to give the general public the opportunity of seeing art or visiting historic houses that might not otherwise be accessible so the owner must make certain undertakings about public access to the asset involved and for its safe preservation.  The tax exemptions are conditional and, if the owner fails to deliver on the conditions imposed, the exemptions are withdrawn and the tax previously exempted becomes payable.   The tax privileges are, therefore, really a deferral of tax which stays with the asset until the owner fails to meet his side of the bargain made with HMRC.

Assets (both land/property and works of art) which attract the conditional tax exemptions are listed on HMRC's website.  A recent search of the heritage asset register on HMRC’s website showed 96 named works of art in the Edinburgh area.  These are available to be viewed by the public and, while some of these are on loan to, for example, the National Gallery of Scotland, others are still in private houses.  The owners must offer “reasonable” access to the general public to view the conditionally exempt item. 

Of course it may not be possible for heritage assets to be kept within private ownership forever.  What choices will be faced if the owner is in the position of wishing to sell (or indeed needing to sell) heritage assets to raise money?  If the funds are required to pay tax, there is an “Offer in Lieu” system.  This does exactly what it suggests i.e. the asset is offered to the nation in lieu of the tax that would otherwise be due.  There was recent publicity about a collection of paintings and drawings by Frank Auerbach which were owned by Lucien Freud.  These were accepted in lieu of around £16m of IHT on Freud’s death and will be distributed to galleries across the UK.

If the money is not required to fund a tax charge, a Private Treaty sale to approved government bodies such as museums and galleries is an option which could leave the owner with a better net cash result than a “normal” sale at auction. 

No CGT is payable when an asset is disposed of under the Offer in Lieu scheme or under a Private Treaty sale.  Instead, both schemes involve “Special Price” calculations where the aim, broadly, is that the price paid by the public body or the amount of tax satisfied under the Offer in Lieu scheme reflects the fact that the disposal is exempt from tax.   The tax “saved” is shared between the seller and the public body acquiring the heritage asset.  The amount of the tax saving retained by the seller is known as the “douceur” i.e. a sweetener for allowing the asset to pass into public ownership.

The tax calculations for the “Special Price” can be complicated and although it would generally only be CGT that is relevant when an asset is sold, for heritage assets, the sale can also trigger payment of IHT previously covered by the conditional exemption.  This is best illustrated by an example. 


  • A painting by a renowned artist has been in the ownership of family A for generations.
  • It is currently owned by Young Mr A (in his sixties) who inherited it on the death of his father Old Mr A twenty five years ago.  The painting had been accepted by HMRC as being of sufficient quality to attract the heritage exemption and Old Mr A had agreed to meet various undertakings set down by HMRC regarding the preservation of the asset and allowing the public access to view it.
  • When old Mr A died, the IHT that would have been due on the painting had it not qualified for the heritage exemption would have been significant.  To avoid this liability, Young Mr A agreed to take on the undertakings previously made by his father and Young Mr A has made the necessary periodic reports to HMRC to confirm that he has met these undertakings.
  • Young Mr A has fallen on hard times and has decided that he must sell the painting.  He has taken advice about its value and has been told that it is worth £2m.  There will be CGT due on the sale and, as the sale will also breach the undertakings, there will be a claw-back of the IHT previously exempted on the death of Old Mr A.  The tax advisers have calculated that the total tax at stake is £650,000.
  • The proposed sale has attracted public attention and the National Gallery has expressed interest in purchasing the painting to “save it for the nation”.  They have funds available for this.
  • The choice that Young Mr A must now make is to sell at auction or to enter into a Private Treaty sale with the National Gallery.  Ignoring professional costs involved, if the painting were to sell at auction for the anticipated £2m, he would end up with £1,350,000 after tax.  Instead, he agrees to the Private Treaty sale and sells at a “Special Price” of £1,512,500 calculated as follows:-

Agreed Gross Value


Notional Tax


“Douceur” Based on 25% of Tax


Special Price


  • Young Mr A is better off by £162,500 although he has taken the gamble that he may have attracted a higher bid at auction.

This is a specialised area of tax work but with good professional advice, significant savings can be made, particularly when a sale under the Private Treaty rules is combined with a desire to pass the cash proceeds on to the next generation. 


Moira McMillan is Director of Personal & Business Tax Services at Chiene + Tait. Moira specialises in advising high net worth individuals, family businesses, landowners and trustees on tax compliance and tax planning matters. 01505 558 5800