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£7.8 million of tax settled by Degas’ Dancers

A high-value estate rarely consists of a single asset. Property, investments and business interests are often accompanied by something more personal, and sometimes more valuable: art.

In the previous instalment of this three-part series, Art and the Law, my colleague Paige explored the disputes that may arise where art forms part of an estate. This final piece turns to a different question: how careful planning can transform artworks from a potential source of conflict into a powerful tool for inheritance tax efficiency.

Handled properly, art can do something few other assets can: defer tax for generations, or even settle it entirely.

What qualifies as ‘art’? 

For tax purposes, ‘art’ goes well beyond oil paintings and sculptures. Favourable inheritance tax treatment is extended to apply more broadly to objects of pre-eminent importance or objects associated with a building of such importance.

An object will fall within this category of pre-eminence if, in the opinion of the Board of HMRC, it is of national, scientific, historic or artistic importance. The definition is deliberately wide. As practitioners and auction specialists frequently note, this can include not only fine art but also manuscripts, furniture, scientific instruments and other historically significant items.

Recent examples of objects designated as pre-eminent illustrate this breadth: a standing desk used by Sir Winston Churchill, the preserved office of Professor Stephen Hawking, a signed letter by Jane Austen and even a glass incubator used in pioneering IVF treatment in 1977.

For clients, the key takeaway is simple: collections that may not immediately be thought of as ‘fine art’ can still qualify for highly favourable tax treatment.

Conditional Exemption: deferring the charge 

The Conditional Exemption regime allows inheritance tax on qualifying objects to be deferred – sometimes indefinitely.

Where an object of pre-eminent importance is transferred on death or gifted during lifetime (provided it has been owned for at least six years), a claim can be made to defer the inheritance tax otherwise payable on its value.

To qualify, a series of undertakings, overseen by HMRC’s Heritage Team, must be given in respect of the object. These include commitments to keep the object in the UK, to preserve and maintain it appropriately, and to allow reasonable public access to it. Public access may be granted either by permitting access to the location where the object is kept or, more commonly, by lending the object to a public museum or gallery.

If those conditions are met, the tax charge does not disappear, but it is effectively held in suspense. It will only crystallise if the object is sold, exported or the undertakings are breached. Crucially, the exemption can roll forward across generations, provided each new owner gives replacement undertakings.

From a practical perspective, loaning artworks to public institutions can bring additional advantages. In many cases, the borrowing institution will assume responsibility for key costs associated with the loan, including transport, conservation, security and insurance, whether through commercial cover or the Government Indemnity Scheme. Beyond cost savings, public display can enhance an artwork’s provenance and scholarly profile, while increased visibility may, over time, contribute positively to its market value.

Conditional Exemption is therefore particularly attractive for clients who wish to retain important objects within the family while managing liquidity. It is, however, a deferral – not an escape.

Acceptance in Lieu: settling the bill 

The Acceptance in Lieu (‘AIL’) scheme offers a different route. Instead of deferring the inheritance tax, AIL allows inheritance tax to be settled by transferring qualifying objects to the nation. Instead of paying tax in cash, the estate satisfies its liability with art.

A recent example illustrates the scale of the relief available. In 2025, the National Gallery acquired Ballet Dancers (1888) by Edgar Degas under the AIL scheme from the estate of Ann Marks, settling £7.8 million of tax.

It is important to note that, if the object surrendered is worth more than the inheritance tax liability, there is no question of giving the taxpayer ‘change’ and they may well end up surrendering assets of a value which exceed the inheritance tax bill. In some cases, the taxpayer may be able to negotiate a ‘hybrid offer’ whereby the recipient public institution pays the difference in the value of the asset to the taxpayer. In the case of Degas’ Ballet Dancers, the National Gallery paid £1.5 million to the estate alongside the transfer, ensuring the full value of the painting was realised.

An AIL application requires detailed supporting information, including a full description of the object, justification of its pre-eminent status often provided by specialists, a recent valuation and condition report, evidence of good title, and a detailed record of provenance (particularly for the period between 1933 and 1945).

The process is rigorous, but the outcome can be highly efficient: converting a potentially illiquid asset into a direct settlement of tax.

Conclusion 

Across this series, a consistent theme has emerged: art is not just decorative or sentimental. It is legally and financially significant. A Degas settling a £7.8 million tax bill may sound exceptional. In reality, it illustrates a broader principle: the right asset, handled in the right way, can fundamentally change the tax outcome.

From a private client perspective, early and informed advice is key. With proper planning, artworks and heritage assets can be structured to reduce the likelihood of disputes, defer inheritance tax across generations or, in appropriate cases, discharge liabilities altogether.

Our Private Client team advises on all aspects of succession and tax planning, including the strategic use of Conditional Exemption and Acceptance in Lieu in relation to art and heritage assets. Early, specialist advice is essential to ensure that these opportunities are properly realised.