How to invest in a racehorse

Record prices for horses sold at Tattersalls auction house this year brought horseracing back into the spotlight, boosted by overseas demand and a shortage of young thoroughbreds.

In the autumn sale the total amount spent on racehorses reached 68m guineas (the currency used in sales), equivalent to £70m.

International buyers are travelling to the UK to seek out the next Frankel, a four-year-old thoroughbred who astonished the racing world with his 14 straight victories and £3m in prize winnings for his owner over the past three seasons.

“The top end of the horseracing industry is very buoyant at the moment,” says Penelope Lang, tax partner at Smith & Williamson, the accountancy and investment management group.

“This is because the number of mares put in foal has fallen since the start of the financial crisis in 2008, so there is a shortage of thoroughbred foals. At the same time there is rising demand from buyers from Australia, Quatar, the US and Japan.”

There are several provisos for investors to consider, however, not least the old adage that “the quickest way to get a small fortune from horseracing is to start with a large one”.

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Buy a racehorse

Investors can purchase horses at auction houses such as Tattersalls, direct from stables or through private sales.

The average racehorse is priced at about £18,000 and experts warn that running a horse typically costs about £20,000 a year so requires deep pockets, unless you’re lucky enough to pick a winner.

On top of the purchase cost there are training costs of about £240 to £300 per week as well as vet bills, feed, transport, shoes and ownership registration. The Racehorse Owners Association says that for every £100 owners spend on average they only see £20 return.

British Bloodstock Marketing, which provides advice for people interested in racing and breeding, recommends employing a specialist. This could be a bloodstock agent, who will usually charge a 5 per cent commission, or a trainer, who may not charge but will expect to train the horse.

Sole ownership means that all costs (and profits) come to the individual. However, Daniel Lyons, indirect tax partner at Deloitte points out that it is possible for owners to recover value added tax paid for costs associated with the horse. Profits made on the sale of a horse will also attract no capital gains tax.

Nick Attenborough at Racing Enterprises says the cost of ownership varies considerably, with the purchase price of the horse itself being the greatest variable. The value will depend not only on the horse’s pedigree or family lineage, physical composition and past performance if it has raced, but on the economic climate and current demand.

www.tattersalls.com

www.britishbloodstockmarketing.com

www.racehorseowners.net

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Form a syndicate

The cheapest and easiest way to invest in a racehorse is as part of a syndicate, where the costs of ownership are shared.

Syndicates charge monthly subscriptions for stakes in a number of horses, or will offer a straight shareholding for a lump sum. In the UK, for example, investors hope to get a share of the £110m prize money up for grabs every year on the racing circuit, plus any profits made on the sale of the horse.

When choosing a syndicate, the British Horseracing Authority emphasises that the choice of trainer is important. If stable visits are likely to be a big part of ownership, the trainer should be within a reasonable distance and be comfortable with visits.

“With a syndicate the prospects of consistent investment returns are still slim, but at least you may only stand to lose hundreds, rather than tens of thousands of pounds,” says Justin Modray of CandidMoney.com. “If the syndicate is smart it might be able to make money by selling on more promising horses at a profit in future.”

www.racing-index.com

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Invest in Enterprise Investment Schemes

Enterprise Investment Schemes (EIS) invests in a portfolio of bloodstock assets, and are one of the most tax-efficient ways to invest in horses.

EISs benefit from 30 per cent income tax relief on the initial investment and no tax on gains. Existing capital gains may also be deferred, if realised less than 36 months before the EIS investment or less than 12 months after it.

One scheme on offer is the Inshowjumpers EIS, which currently owns two showjumping horses and will buy more as it raises more money. Another company, Owners for Owners, is in discussion with HM Revenue & Customs about launching an EIS for racehorses.

Modray points out that there are a limited number of EIS schemes and adds that while the tax perks partially compensate for the risks, it remains an investment better suited to sophisticatd investors.

www.taxefficientreview.com

www.inshowjumpers.com

www.ownersforowners.co.uk

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Enter into partnerships

Joining a trainer’s scheme, often advertised in the racing press, or entering into a partnership with family members or friends allows investors to spread the risk.

“Partnerships usually involve a group of friends who ‘own a leg’ each,” says Sarah Broughton of Prime Purchase, who is also involved in the bloodstock and racing industry. “This group will then choose a trainer and tend to be quite involved in the horse’s training and where it runs.”

Experts say partnerships tend to be slightly more risky than syndicates, but point out that if the horse is lucky, investors stand to gain more prize money.

Alternatively, investors can opt to lease a horse for a set period of time, according to the British Horseracing Authority, the governing body of British horseracing.

www.britishhorseracing.com