On the face of it, this is a silly question. A likely response being ‘it is an animal with four legs used for riding.’ However, if we ask further questions such as who owns and rides the horse and what is its main purpose, then the answers will lead to a different accounting and taxation treatment.
Depending on the function it performs, a horse may be an agricultural animal, or it may not. A horse is an agricultural animal if it is intended for human consumption or to work as a draught horse, e.g. pulling ploughs. Draught horses are virtually non-existent in the UK now and the UK is not renowned for consuming vast quantities of horse meat. Realistically, the only horses in the UK still qualifying as agricultural animals are used for breeding, regardless of the ultimate use of the progeny. Therefore, any studs where horses are bred, be that thoroughbreds, event horses or Shetland ponies, generally qualify for agricultural reliefs.
If the horse is used as a competition horse, it may be ridden by the owner for pleasure or by a professional, with the owner paying for all the costs associated with the horse. As far as the owner is concerned it could be a ‘hobby horse’ or, more specifically, a horse purchased/bred without any intention of creating a trading activity. Horses such as these qualify for tax purposes as wasting (life expectancy of less than 50 years) chattels, which are exempt from capital gains tax (unless they are used in a trade and capital allowances have been, or could have been, claimed on them). Therefore, if a taxpayer buys a horse which turns out to be a successful competition horse and worth much more than it was bought for, when the horse is sold, any profit will generally be exempt from capital gains tax.
Competition horses belonging to professional riders and used as part of an equestrian trade form part of the apparatus with which a trade is carried on; these can qualify as a fixed asset on which capital allowances may be claimed. The same can be said of horses used in a riding school or trekking centre which are also treated as plant for capital allowance purposes.
Where there is a trading business and a horse is purchased or bred for resale it is more likely to be classed as trading stock, no capital allowances are available and any profit on disposal forms part of the trading profits of the business.
If you would like to discuss anything mentioned above, please contact Lucie Hammond at lucie.hammond@hazlewoods.co.uk or 01242 680000.