Breeder of the Month

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Aglance at the list of candidates for the TBA Breeder of the Month award during the last year highlights not only the considerable success of British-bred horses, but also the difficult decisions faced by the TBA committee charged with selecting the winner each month.

The July award was so competitive that even Enable (bred by Juddmonte Farms) winning her third King George VI and Queen Elizabeth Stakes and Nazeef (Shadwell Estate Company) achieving her Group 1 breakthrough in the Falmouth Stakes narrowly missed out.

Enable is a fourth generation homebred and this careful nurturing of families over several generations is the hallmark of many of the most successful breeders, both the major international operations and those plying their trade on a more modest scale.

Sussex Stakes hero Mohaather is the second Group 1 winner in three years descended from Gaie Johnson Houghton’s renowned Sirnelta family that has resided at Woodway for four decades.

Mohaather: struck a blow for British-breds

Gaie’s husband Fulke bought the daughter of Sir Tor on behalf of Lord Leverhulme and subsequently acquired her for the family stud after her first two foals disappointed their owner.

The late Lenore Peacock was another small breeder to achieve notable results from a small number of families, some of which had been at the Peacock’s Manor House Stud since before the Second World War.

One of those families, descending from Arrangement (dam of the Britishtrained Kentucky Derby runner-up Bold Arrangement), produced Breeders’ Cup Turf Sprint winner Belvoir Bay and if there had been a November Flat award it would surely have been won by the North Yorkshire stud.

The same county is also the birthplace of one of the most popular National Hunt mares of recent times in the shape of Lady Buttons (Keith Sivills), winner of the January award.

Although the last few years has not seen quite the same number of highprofile British-bred jumpers as earlier in the decade when the likes of Cue Card, Coneygree and Thistlecrack were at their peak, it seems as if the wheel of fortune is turning again for British National Hunt breeders.

At last season’s Cheltenham Festival, Honeysuckle (Dr G W Guy) captured the Mares’ Hurdle and Santini (Mr & Mrs R. Kelvin Hughes) came within a fast diminishing neck of winning the Cheltenham Gold Cup, and could well go one better next March.

Month Breeder of the Month Horse November Karina Casini De Rasher Counter December Dr G W Guy Honeysuckle January Keith Sivills Lady Buttons February R And J Micklethwait Copperhead March Mr & Mrs R Kelvin Hughes Santini June Godolphin Lord North July Mrs R F Johnson Houghton Mohaather August Highclere Stud & Floors Farming Palace Pier September Newsells Park Stud Mogul Special Merit Horse No Award NA No Award NA No Award NA No Award NA No Award NA Mrs James Wigan Nando Parrado Homecroft Wealth Racing Oxted Knox & Wells Limited and R W Devlin Pyledriver Bearstone Stud Ltd Glass Slippers

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Capital Allowances

Stud owners could be missing out on valuable tax relief. Owners should also be aware of how they can take advantage of the changes to capital allowances announced in Budget 2018.

Many stud farm owners are missing the opportunity to take advantages of capital allowances when buying a new stud or when carrying out major works. Where businesses are investing large sums of money, an understanding by the owner or their advisers, of the tax relief opportunities available is crucial for financial efficiency. When a business acquires a stud farm there will usually be several categories of assets acquired – commercial buildings, agricultural land, moveable items of plant and machinery, fixtures and fittings and often some residential buildings. As long as the business carries out a qualifying activity, for example bloodstock breeding, then capital allowances will be available on qualifying expenditure. This will mean that the purchase price will need to be apportioned between the various categories of assets acquired. Moveable items of plant and machinery and fixtures should automatically qualify for capital allowances while residential buildings will not generally qualify. Any expenditure on items which are structural in nature i.e. buildings and fixed items such as walls and floors do not qualify for capital allowances. Therefore, once the purchase price of the stud is apportioned any structural element attributed to commercial buildings, residential buildings or land will usually be set aside and not looked at further.

However, commercial buildings (including stable blocks) will often include Property Embedded Fixtures and Features (PEFFs) which are eligible for capital allowances. Many fixtures and features will be relatively obvious, for example fire alarms, emergency lighting, sanitary ware installations. However, many will be less obvious, for example electrical systems including plug sockets, cold and hot water installations. Many of these less obvious items are often referred to as ‘integral features’. There are then several key issues to address:

• when did the vendor incur the expenditure on the

PEFFs originally • has the vendor ever claimed capital allowances on the

PEFFs before

• whether the vendor had ever ‘pooled’ their expenditure The issue could be made significantly simpler if the vendor acquired the property before April 2008, or incurred expenditure on improvements to the commercial buildings before this date as integral features were not in force. As allowances has not been claimed it is therefore possible for the buyer to claim allowances on these costs on a ‘just and reasonable apportionment’ of the purchase price (this is where the apportionment of the original cost is so crucial). Arriving at a value of the integral features is usually a specialist area and normally a survey will need to be done of the property to establish the relevant values. Third party specialist firms exist to carry out these surveys. However, the likelihood is that the vendor has incurred expenditure on ‘integral features’ since April 2008. This is where the CPSE and section 198 election come into play. If the vendor has pooled their expenditure for capital allowances (treated as one total figure) then a written disposal value statement will be drawn up that shows the apportionment of the purchase price between all the various categories of assets

acquired. This statement will usually go into detail showing expenditure in each tax pool of the vendor and whether they are integral features or not (with the exception of the April 2008 date noted previously). The value of the PEFFs shown on the disposal value statement is known as the ‘disposal value’ and it is worth noting where a building is purchased after April 2008 there is a limit on the amount of qualifying expenditure that can be attributed to fixtures and fittings for capital allowances purposes, being the vendor’s cost. As such the amount that the purchaser can claim capital allowances on will be restricted to the ‘disposal value’, which cannot exceed the vendor’s original capital allowance qualifying expenditure. Lastly, there is the potential that the vendor may now wish to claim allowances on these costs, as they have to ‘pool’ them anyway. If they do, then a disposal value statement will not be required, but instead a fixed value statement (commonly referred to as a ‘section 198 election’) will be issued which clearly states out the values on which the purchaser will be able to claim capital allowances on.

It is therefore important that when a stud owner is considering buying a new stud that appropriate advice is taken to ensure maximum tax relief is obtained when the stud is used for a qualifying purpose. For more information, please contact:

Penelope Lang

Partner, Smith & Williamson LLP t: 01722 431 064 e: penelope.lang@smithandwilliamson.com

smithandwilliamson.com

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at 16/10/2020. Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions. Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International, a leading, global network of independent accounting and consulting firms. Please see https://nexia.com/member-firm-disclaimer/ for further details. xxxx © Tilney Smith & Williamson Limited 2020. 141920lw