A doctor’s disastrous foray into the glamorous world of racehorse ownership led to a guideline case in which the First-tier Tribunal (FTT) analysed the vexed issue of what differentiates a commercial trade from a mere hobby.
The doctor thought he was onto a winner when he purchased a half share in a horse called ‘Hermes’. The horse caused ‘a minor stir’ in the racing world when he came a ‘creditable second’ in his first race and, on the strength of that performance, a buyer offered to snap up Hermes for £50,000. That was turned away in the hope that the horse would achieve further track success – and perhaps even win commercial sponsorship from the luxury brand Hermes.
That turned out to be a forlorn hope, however, after it emerged that Hermes did not have winged heels after all. His showing at his next race was ‘decidedly average’ and he appeared to have become bored with racing. Hermes was ultimately sold off as a polo pony and the doctor, who had paid up to £8,000 for his share in the horse, only got back about £500 of his investment.
The doctor, who had also paid half of Hermes’ training, livery and racing costs, lost more than £12,000. He sought to write off those ‘trading’ losses against his other income for tax purposes but met stiff resistance from HM Revenue and Customs.
The FTT accepted that his original intention had been to buy, bring on, and ultimately sell Hermes at a profit. However, in dismissing his appeal, it noted that he had also enjoyed the ‘pride of possessing’ a racehorse of his own. Overall, what he did had ‘the feel of indulging a hobby’ and ‘did not amount to a trade’.