Alternative assets – Investing in racehorse syndicates

Taxation on racehorse syndicates

The third article in our alternative assets series focuses on racehorse syndicates. These syndicates are a unique investment prospect that combine the enjoyment of horse racing with potential financial rewards.

Investing in a racehorse syndicate is mainly a hobby for many people, with members joining for the enjoyment of ownership rather than financial gain, as the chances of making a profit are slim. While the experience can be exciting, understanding the UK tax implications will help you make informed decisions before getting involved.

This article explores how HMRC treats racehorse syndicate investments, covering Income Tax, VAT considerations, and the treatment of winnings and losses.

What is a racehorse syndicate?

Racehorse syndicates allow multiple individuals to co-own a racehorse, sharing costs and potential profits. Syndicates can range from informal groups to professionally managed clubs.

What tax is due on racehorse syndicates?

In most cases, HMRC considers racehorse ownership a hobby rather than a trade. This classification means:

Prize money is tax-free – owners do not pay Income Tax on winnings.
No Income Tax relief – costs such as training, vet fees, and upkeep are not tax-deductible. Any uplift in value of the horse is tax free.

However, if the syndicate operates on a commercial basis with a genuine view to profit – such as through significant sponsorship deals or brand promotion – HMRC may classify it as a trade. In this case, Income Tax could apply to profits, but losses might also become deductible. To find out more on indicators of trading activity and HMRC guidelines, you can read our badges of trade blog here.

Important to note: While buying a share in a racehorse typically covers the majority of its care and upkeep costs, it’s important to review and understand the terms and conditions of the share agreement carefully, as additional or recurring costs may apply depending on the syndicate and specific arrangement.

VAT considerations

To register for VAT under the VAT registration scheme for racehorse owners, syndicates must meet certain criteria that demonstrate the racehorse ownership is a business activity. The key requirements include:

Business intention: The ownership must be operated with a genuine intention to generate income, such as through prize money, sponsorship, or selling the racehorse, rather than purely for personal pleasure.
Eligible participants: Syndicates can register for VAT under the scheme, provided they meet the necessary criteria. Other owners who may also qualify include breeders, dealers, trainers, and racing clubs.
Commercial activity: There should be evidence of active participation in the industry (e.g., entering races, seeking sponsorship, or planning future sales).
Taxable supplies: The owners must be making or intending to make taxable supplies, such as selling horses or earning sponsorship income, which are subject to VAT.

Once a syndicate is VAT registered, there are important factors to consider to ensure compliance and maximise tax efficiency:

Input tax recovery: VAT on training, upkeep, and associated costs can be reclaimed if the syndicate is VAT registered.
Output tax obligations: VAT must be charged on income such as prize money, sponsorship, and horse sales if registered.
Selling shares: When selling part shares in a racehorse, VAT may apply depending on the syndicate’s VAT status.

If the syndicate qualifies under the VAT scheme, members can offset some expenses, improving the tax efficiency of their investment.

Closing thoughts

The main consideration for investing in racehorse syndicates is to remember that it’s more about the experience of owning a racehorse than it is about anything else. If you’re partaking in a syndicate as a hobby, the chances of making a profit are extremely slim – but it can happen!

While prize money is generally tax-free, costs related to training and upkeep may not be deductible unless the syndicate operates as a trade. Other income, such as sponsorship, could be subject to taxation. VAT registration presents an opportunity to recover VAT on certain expenses, making it an important consideration for improving the overall tax efficiency of the investment.

How can Price Bailey help?

Investing in racehorse syndicates can be a rewarding experience. The tax treatment varies based on how HMRC classifies the activity, and understanding the nuances is key to maximising returns. Our team can guide syndicates through the implications, including registering for VAT, and help you make informed decisions for your syndicate, while staying compliant.

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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