How to Get the Best Tax Breaks for Livery Diversification

Livery owners need to make sure they structure their businesses properly and review their agreements regularly to get the best tax treatment, accountant Saffery Champness advised.

Nick Hart, Director of the VAT Advisory Team, said livery services can be structured to be VAT exempt, with no VAT to be borne by horse owners, which can also have consequences for the reduction of inheritance tax (IHT).

Adding horses to a working farm could be a successful diversification opportunity, especially if someone in the business or family already has an interest in horses, due to high market demand.

See also: So you want to… set up a boarding school?

How VAT works

If companies offer a ‘grant of an exclusive right’ or ‘licence’ to a specific stable and ancillary care elements are included in the agreement, the entire supply may be considered VAT exempt, except provided that a tax election option has not been made on the stables, explained Mr. Hart.

The agreement with the horse owner must state that such exclusive use of a specific stable or occupation license is granted and that such concession is truly the predominant element of the services provided.

When the exclusive right or license is granted in the first place, the level of care included does not affect the VAT situation of the service.

This would only be the case for specialist yards such as stud farms, racehorse stables and school stables.

In addition, a supply that only includes the supply of grazing rights is zero-rated for VAT purposes (0% VAT charged).

Inheritance tax

With IHT, 100% relief is available when an asset meets the conditions for commercial ownership relief (BPR), including being held for the required two years, according to Hart.

The primary factor in determining whether there is a business for BPR purposes – or whether it is an ineligible passive investment – ​​is the level of services provided.

At one end of the scale, boarding businesses which are essentially just grazing arrangements and where the owners take full responsibility for their horses, are considered passive activities which will not be eligible for BPR.

However, a livery business that is run as a commercial operation and provides additional services such as regular health checks and administration of medications, food and cleaning, will be more likely to qualify for relief.

Mr Hart said: “It should be noted that granting an exclusive right or license to a specific stable, as set out above, without any additional service being offered, is largely a passive activity, so that by obtaining a VAT exemption by making such a subsidy, your IHT position may be affected.

“Your professional adviser should also periodically review your particular arrangements and, taking into account the latest case law and HMRC guidance, advise whether OPI should be available, what steps could be taken to strengthen a case for OPI and records that should be retained and provided to counter a potential challenge of HMRC overqualification for the BPR.