Revenue Note for Guidance

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Revenue Note for Guidance

669I Provisions as to deductions

This section provides for certain specific deductions.

(1) All deductions (other than in accordance with subsection (2)) are denied in any circumstance in respect of expenditure incurred on the acquisition of a stallion. This is necessary since a scheme of deductions is provided for in subsection (2) and without this subsection an owner could conceivably get a second full deduction on the disposal or death of the stallion.

(2)(a) A 4 year write-off of the initial value of the stallion is allowed where the trade is chargeable under Case I of Schedule D, at the rate of 25% of the initial value per annum. The first chargeable period in which the deduction is given is—

  1. the chargeable period which contains 1 August 2008, in the case of stallions already standing at stud on that day, and
  2. in any other case, the chargeable period which contains the day the stallion is either acquired or is transferred from racing.

(2)(b) Where the profits or gains from stallion stud fees are changeable to tax under Case IV of Schedule D the same deduction as in Case I is allowed. Under normal circumstances no deduction would be allowed in determining income to be charged under Case IV. This subsection allows the computation to be done as if the income were chargeable under Case I (taking into account this Chapter) even though it is actually charged under Case IV. The effect of this is that, for example, expenses of upkeep of the stallion are allowed as a deduction as well as all the deductions and limitations imposed by the other provisions of this Chapter.

(3)(a) Provision is made for any balance of the annual 25% deduction to be given. In other words if the stallion is disposed of in the 3rd year, the remaining 50% write-off of the initial value is not given by further 25% writing down allowances but rather as a separate write-off of this residual amount (i.e. the balance of the initial value). See paragraph (b).

(3)(b) A deduction is allowed in the chargeable period in which the death or disposal of the stallion takes place of the residual value of the stallion at that time. The combination of the annual deductions during the period of ownership, and the allowing of this deduction in respect of the residual value means that the full initial value of the stallion has now been allowed.

(3)(c) A charge to income tax or corporation tax, as the case may be, is imposed under Case I or Case IV of Schedule D, depending on the circumstances, on the full amount of any receipt on the disposal or death of the stallion. The charge applies whether the receipt is in money or money’s worth.

Where the amount received on disposal is less than the price which the stallion might reasonably be expected to fetch in an open-market sale at arm’s length between unconnected persons (within the meaning of section 10) then that market price is substituted for the actual receipt and tax is charged accordingly.

Relevant Date: Finance Act 2019