The majority of horse owners will, at some point, sell a horse and may not give a second thought to the potential implications of doing so. Not only is there a different legal position on sales made by individuals as opposed to sales by dealers, but the tax implications are also very different.
To be a horse dealer for tax purposes, there are a number of areas to be considered, such as:
- Is there a profit-seeking motive for the sale? An intention to make a profit indicates the existence of a trade.
- How many transactions are involved? Systematic and repeated transactions support a trading activity.
- The nature of the goods sold. Are the goods only capable of being turned to advantage by being sold, or do they yield income, or give enjoyment through pride of ownership? Enjoyment and pride of ownership would not suggest a trade.
- The way the sale was carried out. Were the goods sold in a way that indicates trading, or to raise cash in an emergency?
- The method of acquisition and the source of finance. Where money is borrowed to buy the horse and the loan repaid on sale there is a greater indication of trade than if the horse is acquired by an inheritance or gift.
- The interval of time between purchase and sale. Horses being traded are usually bought then sold relatively quickly.
The profit-seeking motive is the strongest indication of a horse dealing trade. If you buy a horse with the intention of developing it and increasing its value to sell by breaking, schooling and/or competing then it would be hard to argue that you are not trading.
If there is a trading activity, then any profit on the sale of the horse, after allowing for deductible costs will be subject to income tax or, if the trade is run through a limited company, corporation tax and should be declared annually on your self-assessment tax return. If there is a trade, then there is also the potential to set any trading losses made against other income received in the same or earlier year.
VAT also needs to be considered. Where the total gross sales in any rolling twelve month period exceed the VAT registration threshold (currently £85,000), then there is normally a requirement to register the business for VAT. Within an equestrian business, there are often a number of income streams and the VAT position could be different for each type of income. For example, remaining with horse sales, the sale of a horse purchased for resale would be subject to VAT using the margin scheme, meaning the trader pays VAT on the difference between the acquisition cost and the selling cost, but the purchaser is not able to reclaim the VAT. Whereas, the sale of a homebred horse would be subject to VAT on the full selling price and the purchaser can potentially reclaim the VAT if the horse is to be used in their business.
If you require further information on the tax implications of buying and selling horses, please contact Lucie Hammond at Hazlewoods LLP on 01242 680000 or firstname.lastname@example.org