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31 Aug, 2020

TD TEST

Ifac's Head of Tax, Declan McEvoy outlines the tax consequences of horse ownership. Highlighting how it is important to speak to your accountant, in order to minimise your liability.

With the quality of Irish bloodstock improving, many owners have faced higher tax bills. It is important to speak to your accountant about how to minimise your liability, says Declan McEvoy.

Ireland’s horse industry has a proud tradition of competing successfully at the highest international levels. In recent years, the quality of Irish-owned horses has continued to improve and many owners have achieved strong prices at the sales. While this year is very difficult with sales postponed due to Covld-19, selling bloodstock can still result in an income spike for horse owners which, in turn, can lead to increased tax liabilities on profits. It is important to understand the main taxes involved and the steps you can take to minimise your liability.

Income tax

Earnings from bloodstock operations and stallion stud fees are subject to income tax at your marginal rate. This can be as high as 49.5% when PRSI and USC are taken into account. In some circumstances, although you may not make any actual profit in a given year, you can still be deemed to have made a taxable profit. To calculate your income tax liability you need to be aware of the valuation rules for tax purposes of stallions, broodmares and their progeny. These rules set out when a deduction for a purchase can be claimed against your tax.

Unlike other animals, stallions are not regarded as stock-in-trade. So, when you purchase a stallion, you cannot claim the full cost against your income tax in the year you make the purchase. Instead, you must claim over a four-year period. Broodmares are valued at either cost or net realisable value, whichever is lower. For broodmares that you breed, ‘cost’ is calculated as the cost of raising them until they are three years old. At your accounts year-end, the value of mares in-foal must include the value of the foal. This is usually calculated as the stallion fee paid plus the costs associated with keeping the broodmare from the date of her covering

With the quality of Irish bloodstock improving, many owners have faced higher tax bills. It is important to speak to your accountant about how to minimise your liability, says Declan McEvoy.

Ireland’s horse industry has a proud tradition of competing successfully at the highest international levels. In recent years, the quality of Irish-owned horses has continued to improve and many owners have achieved strong prices at the sales. While this year is very difficult with sales postponed due to Covld-19, selling bloodstock can still result in an income spike for horse owners which, in turn, can lead to increased tax liabilities on profits. It is important to understand the main taxes involved and the steps you can take to minimise your liability.

Income tax

Earnings from bloodstock operations and stallion stud fees are subject to income tax at your marginal rate. This can be as high as 49.5% when PRSI and USC are taken into account. In some circumstances, although you may not make any actual profit in a given year, you can still be deemed to have made a taxable profit. To calculate your income tax liability you need to be aware of the valuation rules for tax purposes of stallions, broodmares and their progeny. These rules set out when a deduction for a purchase can be claimed against your tax.

Unlike other animals, stallions are not regarded as stock-in-trade. So, when you purchase a stallion, you cannot claim the full cost against your income tax in the year you make the purchase. Instead, you must claim over a four-year period. Broodmares are valued at either cost or net realisable value, whichever is lower. For broodmares that you breed, ‘cost’ is calculated as the cost of raising them until they are three years old. At your accounts year-end, the value of mares in-foal must include the value of the foal. This is usually calculated as the stallion fee paid plus the costs associated with keeping the broodmare from the date of her covering

With the quality of Irish bloodstock improving, many owners have faced higher tax bills. It is important to speak to your accountant about how to minimise your liability, says Declan McEvoy.

Ireland’s horse industry has a proud tradition of competing successfully at the highest international levels. In recent years, the quality of Irish-owned horses has continued to improve and many owners have achieved strong prices at the sales. While this year is very difficult with sales postponed due to Covid-19, selling bloodstock can still result in an income spike for horse owners which, in turn, can lead to increased tax liabilities on profits. It is important to understand the main taxes involved and the steps you can take to minimise your liability.