Private treaty sales

Private treaty sales can be a useful and tax-efficient way for certain museums and galleries to add to their collections. The scheme is effective when acquiring works of art or objects that would, if they were sold on the open market, be liable to capital gains tax, inheritance tax, or (for companies) corporation tax. The scheme is financially beneficial to the seller and the purchasing institution, as the parties share the value of the tax exemption. 

The museum pays a “special price”, usually calculated by deducting from the agreed price the tax that would be payable on an open market sale – and then adding back 25% of the (hypothetical) tax to that net of tax figure. This additional 25% is known as the “douceur” (“sweetener”). The museum therefore acquires the object at a significant discount and the seller receives more than they would if they had sold the object on the open market for the same price.

For example, if a museum wanted to acquire a painting worth £100,000, which under private treaty sale was exempt from inheritance tax at 40%, the museum would only have to pay £70,000 (70% of the market value of the work). In addition, if the painting was liable to capital gains tax or estate duty, the potential saving could be significantly more.

This scheme only applies to museums which are listed in Schedule 3 of the Inheritance Tax Act 1984. Broadly speaking, these museums include the national museums, museums maintained by a local authority or university (and those museums and galleries which were formerly maintained by a local authority or university but are now independent charitable trusts), libraries, and the National Trust.

Importantly, however, if you are not a Schedule 3 body another Schedule 3 body can “front” the sale for you. It may also be worth discussing the acquisition with the Art Fund, which is also a Schedule 3 body.

As with the well-known acceptance in lieu scheme – which, like private treaty sales, is overseen by Arts Council England (ACE) – only works of art which are considered “pre-eminent” qualify for this tax incentive (though works which have previously been conditionally exempted also qualify automatically).

Museum professionals should not worry that the pre-eminence condition means the scheme only applies to objects that might be acquired by the big national museums, or that works would have to be of particularly high value. Pre-eminence can be considered in a local context, so if the object is pre-eminent to you, it is possible it may be considered pre-eminent by ACE.

2. Is your museum a Schedule 3 body (a full list can be found on page 5 of this document), or is a Schedule 3 body willing to “front” the sale for you?

3. Is the object or work of art “pre-eminent”, or has it previously been exempted from tax? The object must satisfy at least one of the follow criteria: