Going for £8m, the first painting to adorn the walls of 10 Downing Street

When Robert Walpole, Britain's first prime minister, acquired in the 1730s the view of Venice pictured here, hardly anyone else in the country owned a painting by Canaletto.

Although works by the Italian artist would eventually become so coveted in Britain that he moved here, Canaletto was primarily known in his homeland when this, the View of the Grand Canal from Palazzo Balbi to the Rialto, was snapped up by Walpole, a collector with a fortune built on South Seas speculation. It is a mystery how much he paid for it, although he certainly spent extravagantly on art and property, buying places such as Houghton Hall, his Norfolk estate, and 10 Downing Street, his London home, which was not yet the official prime ministerial residence and where this painting was hung in the first-floor parlour.

But when Walpole died in 1745, the debts accrued by this monumental spending spree were such that his son, Horace, was forced to sell the work. It made just 36 guineas.

If only the family could have waited. This summer the painting is to return to the auction rooms for the first time in almost 250 years, where it is expected to make up to £8m at the start of a sale of Old Masters at Sotheby's in London on 7 July. It is being sold by a French family, who acquired it more than 30 years ago, and it has not been seen in public for a long time, if ever.

Alex Bell, the auction house's joint worldwide head of Old Master paintings, said the work was in remarkably good condition. He said: "The restorer who looked at it was amazed and said it was probably the best preserved Canaletto outside the Royal Collection. What is lovely is that you can see every brush stroke. It combines the more stylised shorthand of his later works with the still expressive, atmospheric quality of his early works."

It proves, perhaps, that Walpole had as good an eye for art as he had a head for politics.

Born in 1676 into the Norfolk gentry, he became an MP at the age of 26 and by 1710 was Treasurer of the Navy. Within a year, he was impeached for corruption, sent to the Tower and expelled from Parliament.

Two years later he was back in power as Paymaster General, then elevated to Chancellor of the Exchequer and in 1721 became what is now known as prime minister, although the title was not yet commonplace. He served what remains a record 21 years until he was forced to retire through ill health.

He had augmented a family fortune with investments in the South Sea Company, with which he severed ties before it collapsed in 1720, and this paid for him to decorate his homes in an extravagant manner.

He loved Italian art and style, yet never went to Italy himself, not least because of the problems caused by his size, an estimated 20 stone. Contemporary descriptions of him as "the great man" were often deliberately ambiguous.

And he was a man of paradoxes. Although he left his own finances in disarray, as Chancellor, he handled the British economy with aplomb.

The provenance of his Canaletto as an early work at Downing Street was only discovered about a decade ago when a No 10 inventory dating from 1736 was found stuck in a book in the Pierpont Morgan library, New York. The document showed that Walpole also bought the work's sister, Venice, the Bucintoro returning to the Molo on Ascension Day, which also once hung at No 10. It sold in Paris in 1993 for £7.6m, the second most expensive Canaletto to be auctioned. Andrew Lloyd Webber set the world record in 1992 when he paid £10m for a Canaletto view of Horse Guards, London.

Walpole's Canalettos were, however, only two gems in a collection that included works by artists such as Rubens, Rembrandt and Van Dyck. When Walpole died, John Wilkes, an MP, lobbied Parliament to raise the money to buy the collection for the nation. Instead many works were sold in 1751. A London stockbroker, Sampson Gideon, bought the Canaletto, which passed down through his family for nearly 200 years before being sold last century.

Walpole's grandson was even more profligate than his ancestor and the rest of the collection was sold in 1779 to Catherine the Great of Russia. Most only returned to Britain three years ago when highlights were exhibited at Somerset House in London.