Focus Groups

Loss Relief – Bloodstock Breeding Loss Relief

In 1982 the HM Revenue & Customs (formerly known as the Inland Revenue) agreed with the Thoroughbred Breeders Association, to extend the normal loss relief extended to farming from 5 years to 11 years in the case of an individual or partnership. The normal loss relief rules will apply to a company.

The Inspectors Manual states ‘We have long accepted that the breeding of thoroughbred horses is such a long term venture, and provided that a stud farming business is potentially profit making, we would not normally seek to invoke section 397(1) (not being run on a commercial basis thus denying relief) until after 11 years from the start of business’.

However, in order to obtain relief, the HM Revenue & Customs will require that the bloodstock breeding business can demonstrate the following:

1. The business is being run commercially and not on a hobby basis.
2. There is reasonable expectation of future profits.

If a business cannot demonstrate the above, loss relief may be restricted or denied in full. If a breeder makes a profit during the 11-year period the normal loss relief rules relating to farming will apply.

Horseracing however is not a taxable activity. Where a breeder also races horses, a clear division between the two activities should be made. In particular the transfer of horses from stud farm to training or vice versa. Care must be taken to ensure these are carried out at open-market values (Sharkey v Werner (1955) 36TC215).

If a horse previously transferred to training returns to the stud following a successful racing career the uplift in market value is tax-free.

If you would like more information please contact Gary Frear on 01223 728222 or email gfrear@pem.co.uk