Buy A Horse And Save Tax!

by Amanda Banks, Tax-News.com, London

03 August 2006

As 'Glorious Goodwood' gets underway this week amid some untypically glorious British weather, PricewaterhouseCoopers, the tax consultancy, has reminded UK businesses of the tax benefits that can be gained from the ownership of racehorses.

“Although owning race horses is perceived to be an expensive hobby there are some attractive tax breaks available for those with a genuine business that can significantly reduce the overall cost of owning a horse," observed Leonie Kerswill, tax partner at PwC.

There are a number of tax saving opportunities available to stud farmers and horeseowners, according to PwC. For example, owners qualifying for the Owners’ Scheme, an agreement between the British Horse Racing Board and HM Revenue & Customs, can reclaim VAT on bills. Also, whilst horse breeding is regarded as the carrying-on of a trade, horse racing is not a taxable activity, meaning that race horses that suddenly rise in value following a big win are exempt from capital gains tax.

Meanwhile, stud farmers operating in a partnership or as sole traders can achieve tax savings of up to 40% by offsetting losses in the early years of operation against their other taxable income. In recognition of the time it takes to establish a stud, the losses can be allowed for up to 11 years.

Furthermore, stud farmers can take advantage of agricultural building allowances (4%) and capital allowances (up to 100%) on items of capital expenditure such as fencing and horse boxes. In addition, those that base their stud farm on land that they own may also be able to claim agricultural property relief for inheritance tax (IHT) purposes, meaning that 100% of the agricultural value of the land and buildings used in connection with the stud could be IHT exempt.

PwC also says that a horse which has had a successful racing career before being returned to stud will benefit from a tax free uplift in market value. As its value then declines over time, relief is available when calculating the stud profits. A stud business can also register to reclaim VAT.

Kerswill added that: "Anyone involved in breeding or racing horses should make sure they are up to speed with the tax advantages available to them to ensure the odds are in their favour.”

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