The Equine Investment Of Passion
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tax purposes the very use of the words
‘investment’ and ‘passion’ could instantly mean non allowability for
Property Relief (BPR) for Inheritance Tax (IHT) by use of the word
statement implies that firstly the activity is an
investment not a business (section 105 ss 3 IHTA 1984) and passion can
that the reason behind the investment is not commerciality but a hobby
activity that does not have all the necessary badges of trade and
not a business and is therefore not eligible for BPR.
If any investment in an equine activity is to
take place it would be very financially reassuring if there was the
availability of BPR and APR (Agricultural Property Relief).
of the fundamental attacks by HMRC on equine
businesses is that of commerciality.
Whilst HMRC are often prepared to accept that there was
business, they are not prepared to accept that it was a business
carried on for
gain and therefore HMRC argue that BPR does not apply.
Many entrepreneurial businessmen, when they
sell off their business interests at what they consider an appropriate
retirement age, often want to rollover that gain into an “investment of
to take the advantages of the capital gains tax relief on the disposal.
Their choice is
often the equine or the racing
business. A prime
example can be a stud
farm which is farming for tax purposes and therefore has the advantage
as it involves the investment of land. The
stud farm can present a hugely satisfying lifestyle choice.
Land prices showed a large
2005 and 2010 and, whilst there have been problems with profitability
showing a good return on the monies invested in that commercial
passion, the value
of the underlying assets has increased dramatically.
It is therefore important to “frank” that
investment with IHT reliefs where appropriate and where they can be
to HMRC and this is mirrored by the fact that HMRC seem to have decided
it is “open
season” against such IHT claims.
is documented about the HMRC approach in the IHT manuals,
advising inspectors to look out for the rich man’s hobby and the root
attack will rest in checking business plans and that is the
the fundamental motive for the business decision - is this business or
private? Is this a
commercial activity or
this HMRC attack on the world of “all things
equine” there are many genuine equine activities which are
suffering. A lot of the
racing/breeding operations have
suffered from the recent problems in racing and have literally been
course” (see the income tax case Walls v
Livesey) and are potentially and fundamentally profit
is worth returning to the 1982 communication from
HMRC to the Thoroughbred Breeders’ Association (TBA), which stated: ‘We
long accepted that the breeding of thoroughbred horses is such a
venture, and provided that a stud farming business is potentially
making, we would not normally seek to invoke section 397(1) until after
years from the start of the business’ (but note that the Income and
Taxes Act, ICTA 1988 s 397 is replaced by the Income Tax Act ITA 2007
are a number of clear directions outlined in
HMRC’s statement. The
business must be
‘potentially profit making’. A
relevant case, John Agnew (TC566)
actually about a beautician’s business, but the key factor here was
within the existing structure, the business was capable of making a
profit. There are
two ways to prove
whether potential profit exists: either by achieving an actual profit,
showing that a profit can and will be made through accurate, well
business plans. There
has to be a
‘financial road map’ for the equine operation showing how the business
learnt from its own specific mistakes, as well as from generic mistakes
in the trade and any problems arising in the bloodstock industry.
is also important not to muddle breeding of horses
on the stud (which is agriculture) with other equine activities and
for the tax adviser to undertake the correct fact find as to the nature
commerciality of the “investment of passion”.
About the Author
Supplied by Julie
Butler F.C.A. Butler
& Co, Bennett House,
The Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email; firstname.lastname@example.org,
the author of Tax Planning for Farm and Land Diversification (Bloomsbury
Professional), Equine Tax Planning ISBN:
0406966540, and fStanley: Taxation of Farmers
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Article Published/Sorted/Amended on Scopulus 2012-06-26 13:14:14 in Tax Articles