The capital cost of acquiring or improving an equestrian property is significant and it is, therefore, important to make the most of any tax reliefs available. Capital allowances (CA) will give equestrian businesses an income tax deduction for sole traders or partnerships, or a corporation tax deduction for limited companies on the cost of qualifying expenditure.
The amount of CA available for a year will depend on the type of expenditure and if the annual investment allowance (AIA) is available. Where the AIA is available, the deduction can be as much as 100% of the cost in the year of acquisition up to a limit of £1 million. Otherwise, the rate of relief will be either 18% or 6% of the cost on a reducing balance basis, or 2% straight line depending on the classification of the expenditure.
Most businesses will be entitled to claim the AIA, which with some planning can give a significant tax advantage for the year of purchase. AIA will cover costs of equipment and machinery purchases including tack, horseboxes and quad bikes, and integral features such as electrical work and water connection.
When purchasing a new equestrian property it is important to ensure that a full breakdown of costs relating to integral features are established at the time of purchase and that the sale agreement provides a clause to require the seller to make an additional capital allowance claim if the purchaser requires. Without this, it may not be possible to go back at a later date and make a new CA claim resulting in a loss of allowances.
If you have an existing property and have not already done so, it is worth considering arranging a review by a CA expert as there are often amounts that can be claimed that have been overlooked. The same can be said if you are undertaking improvement work to existing buildings or looking to build any new structure. For a successful claim to be made it is essential to have sufficient detailed cost analysis identifying items that can qualify for AIA.
Where a contract for the construction of a new building is entered into after budget day 2018 (29 October), the new structures and buildings allowance (SBA) should be available. The allowance is a fixed 2% of the cost for 50 years and will cover the cost of new commercial equestrian buildings that do not qualify as expenditure for AIA purposes.
In some cases, for example if it is likely that the property will be sold, it may not be beneficial to make the SBA claim as, once made, the cost of construction is no longer an allowable cost for capital gains tax purposes on disposal.
When acquiring, disposing or planning development of equestrian property it is always advisable to speak to a tax expert who can help to ensure you are making the most of the tax allowances available.
If you would like any assistance with CA or any other tax matters please contact Lucie Hammond on 01242 680000 or lucie.hammond@hazlewoods.co.uk.