Disposal of antiques, works of art etc from historic houses

Foreword

This notice cancels and replaces Notice 701/12 (January 2002). There are no substantive changes other than to improve the readability of the Notice.

1.Assets of historic houses

1.1 What is this notice about?

This notice explains which disposals (sales, gifts, reallocations etc.) of assets from historic houses are within the scope of VAT.

1.2 Are all sales of assets from historic houses within the scope of VAT?

No. The assets that you sell from a house used as a private residence are not normally business assets and therefore sales of these are outside the scope of VAT. This also applies to house clearance sales.

1.3 What happens if I charge admission to the house?

If you do this you will be using the house for business purposes. Where you are VAT registered (see paragraph 1.6 of this notice) there is a presumption that any assets (furniture, antiques, works of art etc.) on public display are, for the purposes of VAT, business assets. As such, they will be within the scope of VAT when you dispose of them.

You may, however, choose to treat an asset as a private asset when it is acquired or to take a business asset outside the scope of VAT by reallocating it as a private asset. Further information on this can be found in Section 2 of this notice.

1.4 What happens if I freely lend assets to someone else and they charge for admission to the house?

The assets are not treated as business assets because you have not used them for business purposes. You do not need to account for VAT on their disposal.

1.5 If I am VAT registered do I need to charge VAT on all sales of business assets?

Yes, if you sell a business asset it is normally liable to VAT at the standard-rate. However, your supply is exempt from VAT when the business asset is:

• an antique or work of art; and
• exempt from capital taxes.

You can find further information on exemption in Section 3 of this notice.

1.6 When will I need to register for VAT?

You will need to register only if the turnover from all your taxable business activities reaches the VAT registration threshold. You can find further information on this in Notice 700/1 Should I be registered for VAT? Exempt income does not count towards the threshold. You are not required to register if you go over the threshold only because of the occasional disposal of a business asset.

2.Business assets and reallocation as private assets

2.1 Can I choose to treat an asset, used in my business, as a private asset?

Yes. If you acquire assets for both business and private purposes, such as the furnishings of a historic house in which you live, you can choose to keep them as private assets. If you do this you will not be able to deduct any VAT on their acquisition. Where you have treated assets as private assets you need not account for VAT on their disposal.

2.2 How do I show that I have decided to keep an asset as a private asset?

You should contact the VAT Helpline and provide the relevant information.

2.3 How do I reallocate a business asset as a private asset?

You should show us that you no longer use the asset for any business purpose. This can involve moving it to another part of the house used for private purposes only. You should inform the VAT Helpline when you decide to withdraw a business asset from the business and advise them of the details.

2.4 What are the implications of reallocating a business asset as a private asset?

If you were entitled to some deduction of input tax on acquisition of the asset then you will need to pay VAT when you reallocate it as a private asset. The taxable amount will be the amount:

• you would have to pay to purchase the goods at the time of their reallocation, or if this information is not obtainable;
• you would have to pay to buy similar goods at the time you reallocate them, or if this information is not obtainable;
• the goods would have cost to produce at the time of their reallocation.

Where the asset was not chargeable with VAT when acquired (such as an inherited asset) no VAT is due on the reallocation. When a reallocated asset is subsequently sold the sale is of a private asset and, as such, is not liable to VAT.

2.5 What if I reallocate business assets that have been incorporated with other goods?

This might arise, for example, where you buy a frame for a painting that you have inherited and recover input tax on it. At any time that the painting is reallocated as a private asset VAT will be payable on the frame, based on the value as calculated in paragraph 2.4. VAT is not due on the inherited painting as no VAT had been incurred at the time of its acquisition.

3.Exemption for disposing of business assets

3.1 What disposals are exempt from VAT?

If you dispose of a business asset it is exempt from VAT if the disposal is either:

• by private treaty sale, or disposed of in a way not involving a sale, to a specified public collection or other body and estate duty, capital transfer tax, inheritance tax or capital gains tax is not chargeable on the disposal; or
• for acceptance in lieu of estate duty, capital transfer tax or inheritance tax.

3.2 What is a 'private treaty sale'?

This is a privately arranged sale to bodies, such as the UK National Museums and Galleries and the National Art Collections Fund. These bodies are allowed to buy objects by private treaty in accordance with the relevant legislative provisions.

3.3 What is 'acceptance in lieu'?

This allows a person who is liable to pay inheritance tax, capital transfer tax or estate duty to settle part, or all of the debt, by disposing of a work of art or other object to HM Revenue & Customs.

3.4 What kinds of assets qualify for the exemption?

To qualify for exemption, an object must be of national, scientific, historic or architectural interest. These are often antiques, works of art etc. You can find further information about the capital tax provisions in the guidance on Capital Taxation and the National Heritage.

3.5 How do I support a claim for exemption?

You should get a letter from the Capital Taxes Office confirming that the private treaty sale, disposal otherwise than by sale, or acceptance in lieu, is exempt from capital taxes.

3.6 What is the value of my supply?

If you make a private treaty sale, the value of your exempt supply is the amount you actually receive for the object.

If you make a disposal otherwise than by sale, the value of your exempt supply will be the amount:

• you would have to pay to buy the goods at the time of disposal, or if this information is not obtainable;
• you would have to pay to buy similar goods at the time of disposal, or if this information is not obtainable;
• the goods would have cost to produce at the time of their disposal.

If an object is accepted in lieu, the value of your exempt supply is the amount of estate duty, capital transfer tax or inheritance tax actually satisfied.

4.Input tax on business and private assets

4.1 Can I deduct VAT incurred on the purchase of a business asset?

• Yes. If you buy goods wholly for your taxable business purposes you will normally be able to deduct the VAT.
• If you buy goods partly for business and partly for non-business purposes you may apportion the tax. That will enable you to recover as input tax the proportion of VAT that relates to business use.
• If you buy goods partly for business and partly for private purposes you may choose to apportion the tax or alternatively you may treat all the VAT as input tax but you must then account for VAT as output tax, in each accounting period, on the private use of the goods.
• If you buy goods partly for business, partly for non-business and partly for private purposes you may to choose to either apportion the tax so that you only recover as input tax the proportion of VAT that relates to business use or alternatively you may apportion the tax so that you only recover as input tax the proportion of VAT that relates to business and private use, but you must then account for VAT as output tax, in each accounting period, on the private use of the goods.

4.2 Can I recover VAT incurred on the purchase of a private asset?

No. If you are a VAT registered person who chooses to treat an asset, used for both business and non-business or private purposes, as a private asset you will not be able to deduct VAT as input tax when you complete your VAT return.

4.3 Can I deduct VAT incurred on the repair or maintenance of a private asset?

If you use a private asset for both business and other purposes then you may claim back VAT as input tax on repair or maintenance services. Any claim must be in proportion to the extent the asset is used for business purposes (subject to the normal provisions concerning evidence and partial exemption). You can find further information in Notice 700 The VAT Guide and Notice 706 Partial Exemption. The recovery of input tax on such services does not make the future disposal of the asset itself liable to VAT.

4.4 Can I deduct VAT incurred on selling a business asset?

You can deduct, as input tax, VAT charged on costs that you use or intend to use in making taxable supplies. You cannot normally deduct input tax charged on costs that relate to your exempt supplies. If your input tax relates to both taxable and exempt supplies, you can normally deduct only the amount of input tax that relates to your taxable supplies. You can find further information in Notice 706 Partial Exemption.

4.5 Can I deduct VAT incurred in selling a private asset?

No. You cannot deduct, as input tax, VAT incurred in selling or otherwise disposing of private assets.

Your rights and obligations

Your Charter explains what you can expect from us and what we can expect from you. For more information go to Your Charter.

Do you have any comments or suggestions?

If you have any comments or suggestions to make about this notice, please write to:

HM Revenue & Customs
VAT Deductions & Financial Services
Room 3C/12
100 Parliament Street
LONDON
SW1A 2BQ

Please note this address is not for general enquiries.

For your general enquiries please phone our Helpline 0845 010 9000.

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