A masterpiece by Wassily Kandinsky (1866-1944) that was recently restituted to the heirs of a Jewish collecting couple could fetch up to $45 million (£37.4 million) at Sotheby’s. It is one of the most important works by the artist ever to appear at auction as a rare example of his early style.

Murnau mit Kirche II (View of Murnau with Church) was painted in 1910 when Kandinsky was developing his groundbreaking abstract language, which would crucially inspire the Abstract Expressionist movement. “Kandinsky’s Murnau period came to define abstract art for future generations,” explained Helena Newman, chairman of Sotheby’s Europe. “And the appearance of such an important painting—one of the last of this period and scale remaining in private hands—is a major moment for the market and for collectors.”

But only three decades after it was painted, the artwork became entwined in a family’s tragic history. Johanna Margarete Stern (1874-1944) and her husband Siegbert (1864-1935) were the owners of a thriving textile business in Potsdam, Berlin, where they rubbed shoulders with the likes of novelist Franz Kafka (1883-1924) and physicist Albert Einstein (1879-1955). They amassed a comprehensive collection of over 100 artworks, which included Kandinsky’s acclaimed painting.

But after Siegbert died in 1935, Johanna Margarete and her family were among the millions of Jewish people who were brutally persecuted by the Nazis during World War II. She was forced to sell much of her art collection; at one point she was tricked by the Nazis into handing over a painting by the French artist Henri Fantin-Latour (1836-1904) in exchange for a non-existent visa to Holland. Many members of the Stern family were eventually captured and sent to Auschwitz concentration camp in 1943, where the following year Johanna Margarete was murdered.

Johanna Margarete’s young granddaughter, Dolly, managed to escape capture and spent the next two years hiding from the Nazis in a tiny secret annex in the house of her nanny Anna. She was only two miles away from Anne Frank (1929-1945), who was hiding at the same time.

“When the German officers were inside the kitchen, Anna played the innocent,” recalled Dolly, who survived the ordeal and lived into her 70’s. “She made German jokes and wound them around her finger, but as soon as they were gone she collapsed like a wet mop and shivered all over.”

Dolly’s descendants took up the search for the family’s long-lost art collection in 2010. They tracked down the Kandinsky painting to the Van Abbemuseum in the Netherlands where it had been hanging since 1951. After a 12-year legal dispute, the museum’s curators finally returned it to the rightful owners.

The heirs of Johanna Margarete and Siegbert Stern concluded that “the restitution of this painting that meant so much to our great-grandparents is immensely significant to us, because it is an acknowledgement and partially closes a wound that has remained open over the generations.”

The painting will be sold on 1 March 2023 at Sotheby’s Modern and Contemporary Evening Auction in London – it is expected to reach the highest price ever achieved by the artist at $45 million (£37.4 million). Kandinsky’s current record was set by Bild mit Weissen Linien (Painting With White Lines), which sold at Sotheby’s for £33 million in 2017.