All Things Equine!

The equine market remains very strong, with horses still in demand and prices the highest we have seen for many years. Whether you are buying and selling as part of a trade, or perhaps just selling the odd horse purchased to bring on and sell, it is important to consider the potential income tax consequences.

This is the first big question. If you are selling a horse, or other item, privately then the sale should not be treated as business income and there should be no income tax consequences. If you are selling as part of a business, then the income will form part of your taxable profit.

Where do you draw the line between a private sale and a business sale for tax purposes? The answer can be found by analysing HMRC’s Badges of Trade. This is a list of characteristics used to indicate whether someone is regarded as trading for tax purposes. Essentially the more characteristics on the list that point towards trading activity, the more chance that the taxman will regard the activity as a taxable trade.

1. Profit-seeking motive – did you buy the horse with a view to selling it at a profit?
2. Number of transactions – is this a one–off or do you regularly buy and sell horses?
3. Nature of the asset – was the horse a rescue or did you buy it to sell on again?
4. Existence of similar trading transactions or interests – are you in the horse industry? If you regularly give riding lessons and have a reputation for being able to improve horses then it is more likely that the taxman will think that a horse you sold was part of a trade.
5. Changes to the asset – did you buy the horse to train and sell? Did you compete the horse for a season to add value prior to selling?
6. The way the sale was carried out – did you advertise the horse for sale? Or was it that someone saw you at a show and offered to buy it?
7. The source of finance – did you have to take out debt to buy a horse which you then sold?
8. Interval of time between purchase and sale – was this a horse that you had for a long time and outgrew? Or did you buy and sell for a quick turnaround / profit?
9. Method of acquisition – Was this a much-loved family horse? Or did you go out and buy a horse to sell on?

An honest analysis of the above questions will normally point you in the right direction as to whether you are really trading for tax purposes.

If the conclusion is that you are trading for tax purposes, then the next question is whether or not you made a profit. It is actually quite difficult to train and sell horses at a great profit. Whilst some horses may sell for a good price, you need to consider how much that horse has cost you in terms of keep, entry fees and vets fees. Likewise, if you are breeding horses, then how much has the foal cost you to breed? Once you have considered the costs of keeping the broodmare, the vets fees to get the mare in foal and additional costs of foaling then it may be that there is not much, if any, profit. As a result, it is sometimes in the taxman’s interest to argue that a horse ‘business’ is not a business at all, so as to prevent losses from being deductible against profits from other non-related activities.

If you provide a service and get paid for it, then in general this is treated as income. This could be in the form of working at a livery yard or providing a few lessons. Similarly, buying and selling horses and/or tack and equipment may mean that you have some additional income to declare.

In recognition of the fact that some people do have earnings in addition to their day job, the trading allowance was brought in whereby trading income under £1,000 does not need to be declared on your tax return. The £1,000 limit applies to the gross income (i.e. before taking expenses into account). Whilst this is not much use when it comes to selling horses, it is worth bearing in mind if you are selling tack and equipment or providing a few lessons.

The £1,000 trading income allowance is in addition to your personal allowance of £12,570, under which you do not need to pay any tax or national insurance.