§ Mr. Faulds
asked the Secretary of State for Education and Science whether he will publish in the Official Report the statutory capital tax advantages which owners receive on the sale by private treaty of works of art to public institutions and local authorities, as opposed to sales of such objects on the open market.
§ Mr. Peter Rees
I have been asked to reply.
When an object which has been conditionally exempted from capital transfer tax is sold on the open market, the exemption is lost and there may also be a liability to capital gains tax. However, when such an object is sold by private treaty to one of the bodies listed in paragraph 12 of schedule 6 to the Finance Act 1975, the exemption is not lost, nor is there normally any liability to capital gains tax.
The value of the tax relief in a private treaty sale is taken into account in arriving at the agreed price at which the object changes hands, under the so-called "douceur" arrangement. The practice has been for the vendor to benefit to the extent of 25 per cent. of the value of the putative tax and the acquiring body to benefit to the extent of the remaining 75 per cent. This practice is discussed in the interim report of the Education, Science and Arts Committee, "Works of Art: Their retention in Britain and their Acquisition by Public Bodies", to which the Government will be publishing a full response as soon as practicable.