Race horse ownership tax implications

Are losses tax deductable

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In June 2016 I purchased a 25% share in a competitive 4 year old race horse that had been running in prize winning races at venues such as Haydock, Perth, Musselburgh etc. The horse was registered as part of an official vat registered partnership.

Unfortunately the horse was put down after a career ending injury in March 2017. The costs of my share has resulted in a net loss of around £9k (£5k cost and £4k running costs).

Is this loss tax deductable and if so against what taxable income?

Presumably if the horse had gone on to win the grand national and £300k of prize money I would be required to pay tax on the profit ? 

If any one can help out here it would be appreciated 

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By DMGbus
22nd Jun 2017 08:26

I have only dealt with three racehorse scheme clients in recent years and only in respect of VAT.

What I have seen is that although registered with HMRC for VAT (under the special scheme for racehorse owners) there are no entries on self assessment tax returns for the horseracing activties (no profits declared, no losses claimed). No annual accounts drawn up. In all my cases they have been wealthy individuals rather than partnerships.

One of the articles that I have about racehorse ownership and tax says the following:

" Income tax does not have to be paid to HMRC when owning a racehorse on the basis that it is a hobby and for pleasure.
This means that prize winnings are tax free however, there is no income tax relief available for buying the horse or any of its training costs.
Racehorses tend to cost more in training and in keep than they ever earn in winnings so people are more likely to be paying for the cost from their main earnings that have already been taxed. "

Another article (from 2007) that I have a copy of is still available online at the following webpage:

http://www.taxationweb.co.uk/tax-articles/business-tax/sponsorship-and-t...

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Replying to DMGbus:
By SteveHa
22nd Jun 2017 08:49

DMGbus wrote:

" Income tax does not have to be paid to HMRC when owning a racehorse on the basis that it is a hobby and for pleasure.

I appreciate that I am quoting a quote, so don't take this as a personal affront. However, the article is not strictly correct. The basis on which winnings and losses from owning a racehorse are not taxable is because it can never be a venture entered into with a realistic expectation of profit, and so is more likely to generate a loss than a profit. Disallowing all losses whilst not taxing profits is more economical for the Treasury.

Morris makes an interesting read: http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j8183/TC0...

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Replying to SteveHa:
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By DMGbus
22nd Jun 2017 09:00

Thank you for the link, very good.

The article that I quoted on also said the following:

" ‘There would have to be overwhelming evidence that the activity is being undertaken on a commercial basis with a view to profit for HMRC to contemplate allowing relief for losses (and taxing earnings).
‘This can be achieved if there are modest costs associated with a business brand name or there is a heavy focus on advertising, for example, but this is rare’. "

Unfortunately I can't post a link to the full article as it is only open to subscribers to the online tax information service that is one of several that I use.

Some tax relief for hobby trading with racehorses is sometimes obtained by commercial sponsorship (and sponsorship being present is a condition of the VAT scheme).

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By mjshort
22nd Jun 2017 08:23

Very sorry to hear that (I have 3 myself).

Whilst VAT is reclaimable if your horse is sponsored the actual profit or loss from racing a horse is not within the tax system so if you win the Grand National you have no tax to pay likewise you cannot recover losses against other income or gains .

The only exception being payments for sponsorship of a racehorse by a business (although not if the Director(s) have an interest in racing like myself).

Hope this is adequate as I have to rush off to Ascot.

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Replying to mjshort:
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By User deleted
22nd Jun 2017 08:33

Thanks for the quick response. Good luck if you have anything entered today.

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By Portia Nina Levin
22nd Jun 2017 10:27

Google "bloodstock guide". It will answer all your questions, and is more reliable than any online tax information service.

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