Investing in stallion syndicates

Key considerations and tax implications

Choosing to invest in a stallion syndicate can provide plenty of opportunities to syndicate members who are interested in being part of the bloodstock industry, with the syndicates offering the opportunity for investors to enter the industry by sharing in potential profits from breeding rights.

A stallion’s initial value is influenced by its pedigree and racing success. A successful stallion can be an exceptionally profitable asset, and for investors, stallion syndicates offer a way to share in breeding income without the need for sole ownership.

What are stallion syndicates?

Stallion syndicates are typically structured with multiple members, each owning a share that entitles them to a set number of breeding nominations per season. These nominations can be used for personal breeding purposes or sold to generate income. The syndicate agreement outlines key terms, including how nominations are allocated, income distribution, and ongoing management costs.

What tax should stallion syndicate members be aware of?

The way a syndicate is structured affects how its members are taxed. There are two main approaches.

Syndicates taxed as unincorporated associations

Some syndicates are treated as unincorporated associations, similar to companies. In this case:

The syndicate is taxed on income from selling surplus nominations.
Members are taxed on distributed profits as if they were receiving dividends.
The syndicate produces annual accounts, with profits subject to corporation tax.
Shares in the syndicate are treated as stock, valued annually at the lower of cost or net realisable value.
When members sell their shares, proceeds are treated as trading income, with deductions allowed for the written-down value.
Income from breeding rights and surplus nominations is included in taxable trading income.

Where a syndicate agreement ensures that all risks and rewards belong directly to members, HMRC may treat the syndicate as fiscally transparent. This means that each member is taxed directly on their share of the syndicate’s income and must report their portion of income and expenses in their own tax returns. Income from surplus nominations is fully distributed to members and taxed accordingly, while any expenses incurred by the syndicate can be deducted against the members’ taxable income.

Are foal sharing arrangements taxable?

Some syndicates offer foal-sharing agreements, where stallion share owners and broodmare owners split the sale proceeds of a resulting foal. Members should be aware that their share of foal sale proceeds is taxable, and any related expenses should be allocated as outlined in the agreement.

VAT considerations for syndicate members

VAT rules can have a significant impact on syndicate participation:

VAT applies to the first-time sale of stallion shares if the horse was purchased with the intention of standing as a stallion or if the owner’s racing activity was treated as a business for VAT purposes.
VAT must be charged on stallion share sales, regardless of whether the buyer is based in the UK or overseas.
Syndicates can register for VAT, allowing them to recover input tax on costs associated with stallion management and nomination sales.
Members should consider whether their own VAT position allows them to reclaim VAT on their investment.

Closing thoughts

Stallion syndicates provide an exciting opportunity to invest in the bloodstock industry, offering potential financial returns through breeding income while spreading costs among multiple members. However, the tax treatment of syndicate income, VAT implications, and the structure of the syndicate can all impact an investor’s financial position.

How can Price Bailey help?

Our dedicated agricultural and bloodstock team understand that while stallion syndicates present are appealing, they also have complex tax and financial considerations. Our team has extensive experience advising those within the bloodstock industry, and we can help you understand the tax treatment of syndicate income, VAT implications and potential reliefs.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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