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HMRC internal manual

VAT Business/Non-Business Manual

Specific issues: disposal of works of art from historic houses

Assets of historic houses

Any assets sold from an historic house used as a private residence are not normally business assets. Sales of these are outside the scope of VAT. This also applies to house clearance sales.

However, if someone charges admission to the house they will be using it for business purposes. Where they are VAT registered there is a presumption that any assets such as furniture, antiques, works of art that are on public display are business assets for VAT purposes. Therefore those items would be within the scope of VAT when they are disposed of.

However, it is possible to choose to treat an asset as a private asset when it is acquired. It is also possible to take a business asset outside the scope of VAT by reallocating it as a private asset.

If someone freely lends assets to someone else and that person charges for admission to the house the assets are not treated as business assets. This is because the lender has not used them for business purposes. Any disposal of such assets is therefore outside the scope of VAT.

If a VAT registered business sells a business asset it is normally liable to VAT at the standard-rate. However, the supply is exempt from VAT when the business asset is:

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

Business assets and relocation as private assets

The case of Bakcsi (VBNB74200) established that taxable persons may choose to allocate assets used for both private and business purposes as private assets. By making this choice they can exclude them from the VAT system.

If someone acquires assets for both business and private purposes, such as the furnishings of an historic house in which they live, they can choose to keep them as private assets. If they do this they will not be able to deduct any VAT on their acquisition. Where they have treated assets as private assets their disposal is outside the scope of VAT.

Where someone has decided to keep an asset as a private asset they should contact the VAT helpline and notify them of those assets they intend to treat as private assets.

If someone reallocates a business asset as a private asset they should show HMRC that they no longer use the asset for any business purpose. This can involve moving it to another part of the house that is only used for private purposes. They should contact the VAT helpline when they decide to withdraw a business asset from the business and notify them of the details.

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

  • they would have to pay to buy the goods at the time of their reallocation; or if this information is not obtainable
  • they would have to pay to buy similar goods at the time they 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.

It is possible to reallocate business assets that have been incorporated with other goods. For example, someone might buy a frame to suit an inherited painting and recover input tax on it. At the time the painting is reallocated as a private asset VAT is payable on the frame, valued as set out earlier in this section of the manual. VAT is not due on the inherited painting as no VAT had been incurred at the time of its acquisition.

Exemption for disposing of business assets

If someone disposes of a business asset it is exempt from VAT if the disposal is either:

  • by private treaty sale, or disposal otherwise than by sale, to a specified public collection or other body if estate duty, capital transfer tax, inheritance tax or capital gains tax would not thereby become chargeable; or
  • for acceptance in lieu of estate duty, capital transfer tax or inheritance tax.

A private treaty sale 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.

Acceptance in lieu allows someone 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 and Customs.

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

To support a claim for exemption 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 is needed.

If someone makes a private treaty sale the value of the exempt supply is the amount they actually receive for the object.

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

  • They would have to pay to buy the goods at the time of disposal; or if this information is not obtainable
  • They 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 the exempt supply is the amount of estate duty, capital transfer tax or inheritance tax actually satisfied.

Input tax on business and private assets

If someone buys goods wholly for their taxable business purposes they will normally be able to deduct the VAT. If they buy goods partly for business and partly for their private purposes they may choose to apportion the tax and count as input tax only the tax relating to business use. They may alternatively treat all the tax as input tax and then account for output tax in each accounting period on the private use. See VIT VAT Input Tax VIT25200 for more on this.

If someone chooses to treat an asset used for both business and non-business or private purposes as a private asset they will not be able to deduct the input tax.

Someone who uses private assets for both business and other purposes may claim input tax on the repair, renovation and maintenance of such assets despite their allocation as ‘private assets’. 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 more about evidence at VIT VAT Input Tax VIT31000. You find more about partial exemption at PE Partial Exemption.

The act of recovering this input tax does not make the future disposal of the assets themselves liable to VAT.

Input tax charged on costs that someone uses or intends to use in making taxable supplies can normally be deducted. Input tax charged on costs that relate to exempt supplies normally cannot be deducted. If the input tax relates to both taxable and exempt supplies, only the amount that relates to taxable supplies can be deducted. You can read more about this at PE Partial Exemption.

VAT incurred in selling or otherwise disposing of private assets cannot be deducted.

HMRC staff with any difficulties concerning this area should refer the issue to VAT Advisory Team.