No, the sale of a racehorse is not tax-free!
Do you own a horse? Are you making a capital gain when reselling it? Are you wondering whether this capital gain is subject to tax?
For a while, this capital gain was tax-exempt. Now it’s taxed. AGN Avocats answers your questions.
Capital gains on horse sales are taxable
Prior to 1977, it was accepted that the sole ownership of one or more racehorses, which the owner merely maintains by paying the trainer the cost of boarding, and which the trainer uses to compete in equestrian events, could not be assimilated to a business or gainful occupation. Under these conditions, the sums received as a result of the success of some of the horses or the sale of one of them constituted non-taxable capital gains.
Since 1977, these capital gains have been taxable. When you make a capital gain from the sale of your racehorse, you are liable to pay tax, whatever your situation. However, the applicable rules and tax treatment of this capital gain differ according to your situation.
You are taxable regardless of your situation
You should be aware that the income you receive simply from owning a racehorse does not fall into the category of agricultural profits (“bénéfices agricoles” or “BA” in French).
Income derived from the preparation and training of domestic equid with a view to their exploitation constitutes BA. If you do not meet this definition, under tax law you are not receiving agricultural profits that are subject to income tax.
Depending on your situation, the income you derive from this situation (referred to here as non-agricultural equestrian activity) is subject to income tax as non-commercial profits (“Bénéfices non commerciaux” or “BNC”) or as industrial and commercial profits (“Bénéfices industriels et commerciaux” or “BIC”).
What is your situation?
You are subject to income tax on the income you receive when you own a racehorse. Regardless of your situation:
- You are an owner who is not a breeder or trainer: as part of the management of your private assets, you let a third party train your racehorses by boarding them.
- You are an owner who rents a racehorse’s racetrack: under a “racetrack rental” contract, you entrust a trainer with the task of racing the horse. The trainer is responsible for the horse’s training and boarding costs, and in return receives the winnings from the race, while you receive a fraction of the winnings.
In either of these situations, you are a simple owner, and the income you receive does not constitute agricultural profits. But that doesn’t mean that the capital gain you make on the sale of your racehorse is not taxable. You are subject to income tax in a different category.
“But that doesn’t mean that the capital gain you realize on the sale of your racehorse is not taxable. You are subject to income tax in a different category.
What is the tax status of your capital gain?
If you are the sole owner of a horse, the way you are taxed on capital gains depends on your situation.
1. If you’re just a horse owner, but not engaged in any professional activity
As an owner of racehorses, your winnings and premiums received in this capacity are exempt when you simply entrust your horse to a trainer without exercising any diligence with a view to providing yourself with a source of income. This cannot be equated with a profit-making business or occupation.
Please note: the exemption of your racing winnings does not mean that the capital gain on the sale of your racehorse is exempt. Exemption of your racing winnings does not mean exemption of your capital gains.
The Conseil d’Etat and the French tax authorities have repeatedly ruled that capital gains arising from the sale of a racehorse are taxable as capital gains generated by private individuals on movable property. It is a capital gain on tangible personal property.
“Exemption of your racing winnings does not mean exemption of your capital gains.
We remind you that, in the past, these capital gains constituted non-taxable capital gains. Since 1977, however, capital gains have been subject to income tax.
2. You have a professional activity
If, in addition to owning your own property, you have the facilities and staff to prepare and train your racehorses, and if you take initiatives and carry out controls to this end, the racing winnings you receive are not tax-exempt.
You are considered to be engaged in a gainful activity that generates regular profits. Capital gains from the sale of racehorses are subject to income tax in the professional capital gains category.
“Capital gains […] are subject to income tax in the professional capital gains category.
Exceptional capital gains exemption scheme
However, in accordance with special provisions, capital gains are sometimes exempt from tax. If you have been in business for at least 5 years, and your income from this lucrative activity is below a certain limit, your capital gains are fully tax-exempt.
Two conditions must be met to benefit from the total exemption of your capital gains:
- You have been running your business on a professional basis for at least 5 years.
- The amount of revenue received does not exceed €250,000.
Do you have further questions about selling horses? Would you like to know how the capital gain on the sale of your racehorse is taxed?
Contact us and a lawyer from the AGN Avocats network will meet with you!