Dealing in Horses is not a trade for EIS purposes

A cautionary note on supposedly tax efficient investments (and qualifying for any tax relief).  The lesson is that you must meet the rigorous conditions that come with it and not just go through the motions in order to make a successful claim. This is the case for any relief, of course.  Compliance is an essential part of the planning from the outset and for as long as it takes!

In Valyrian Bloodstock Limited v HMRC [2022] TC08578, the First Tier Tribunal (FTT) denied Enterprise Investment Scheme (EIS) relief to a business that bought and kept horses. The risk to capital condition was not met: there was no qualifying trade so no long-term objective to grow and develop a trade.

The Facts

Valyrian Bloodstock Limited was set up in February 2019 with a single shareholder. Its activities were the raising of horses and other equines and the purchase and sale of bloodstock.

Its website described it as offering EIS investment syndicates. In March and June 2019 shares were allotted to four investors. During 2019 six horses were purchased for a total cost of £192,400. Commission was paid on the purchase of each horse. The horses were to be sold aged two or three years old without having been trained. The intention was that when a horse sold the proceeds would be reinvested in a new horse. All funds raised were required for the keeping of the horses meaning that no more could be bought until one was sold.

Claiming the Relief

In November 2019 the company provided HMRC with four EIS1 compliance statements. Since the company had not applied for advance assurance that it met the conditions for relief HMRC asked for additional information.

This showed that the horses were stabled with a third party with amounts being paid for this and for medication, farriers fees, etc at £8,670 per horse per year. The financial information was, as described by the FTT, ‘sketchy’ and ‘inaccurate’ with other documentation appearing to be in draft form only. The company did not have any cash flow or financial forecasts or a business plan.

HMRC refused to issue the necessary EIS certificates on the grounds that the ‘risk to capital condition’ had not been met and the company did not meet the ‘qualifying trading company’ requirement – i.e. it could not have an ordinary trade of wholesale or retail distribution as the trade consisted to a substantial extent of dealing in goods of a kind that are held as an investment.

The company appealed HMRC’s decision.

The First Tier Tribunal Ruling

However, the FTT dismissed the appeal on the following grounds:

  • It was necessary to look at the circumstances at the time the shares were issued, together with contemporaneous evidence. Whilst there was some indication in the correspondence from the company that a continuing trade was intended, this was dated nearly 18 months after the share issues.
  • The business model was high risk but there was no evidence that it was anything other than a three-year investment and no evidence to demonstrate the growth and development of the company.
  • It was instead an investment opportunity in a ‘wrapper’ that was perceived as being tax efficient. The horses were held for capital appreciation rather than as trading stock.


Stephen Panham