In the case of historic houses that charge admission, there is a presumption that any assets (like furniture, antiques, works of art) on public display are, for the purposes of VAT, business assets. As such, they will be within the scope of VAT when disposed of.

Owners may however, choose to treat an asset as a private asset when it is acquired, and should contact the VAT helpline to report this and provide the relevant information. If they do so, they are not able to deduct any VAT on their acquisition. Where owners have treated assets as private assets they need not account for VAT on their disposal.

Owners can also opt to reallocate a business asset as a private asset, but must show it is no longer used for any business purposes, and inform the VAT helpline. This can involve moving it to another part of the house used for private purposes only.

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 required to buy the goods at the time of their reallocation, or to buy similar goods at the time they were reallocated, or what the goods would have cost to produce at the time of their allocation.

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 later sold the sale is of a private asset and, as such, is not liable to VAT.

The guidance also covers situations where owners seek to reallocate business assets that have been incorporated with other goods, for example when buying a frame for an inherited painting and then seeking to recover input tax on it.

At any time that the painting is reallocated as a private asset VAT will be payable on the frame, but VAT is not due on the inherited painting as no VAT had been incurred at the time of its acquisition.

Assets which have been freely lent to someone else who charges for admission to their house are not treated as business assets, and there is no need to account for VAT on their disposal.

If owners 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.

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.

A private treaty sale is defined as a privately arranged sale to bodies, such as the UK national museums and galleries and the National Art Collections Fund.

The acceptance in lieu provision allows a person who is liable to pay HMRC 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 qualify for exemption, an object must be of national, scientific, historic or architectural interest.

Owners who buy goods partly for business and partly for non-business purposes may apportion the tax to recover as input tax the proportion of VAT that relates to business use. Or if they buy good partly for private purposes they may treat all the VAT as input tax but must then account for VAT as output tax, in each accounting period, on the private use of the goods.

A VAT-registered person who chooses to treat an asset, used for both business and non-business or private purposes, as a private asset will  not be able to deduct VAT as input tax when completing a VAT return.

Anyone using a private asset for both business and other purposes then 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).

The recovery of input tax on such services does not make the future disposal of the asset itself liable to VAT. Owners cannot deduct, as input tax, VAT incurred in selling or otherwise disposing of private assets.

HMRC guidance VAT on antiques or art from historic houses (Notice 701/12) issued 11 May 2018

Report by Pat Sweet