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.

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.
  • 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 company Appealed the decision after a statutory review upheld it.

The FTT dismissed the appeal:

  • 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.

Useful guides on this topic

EIS: Enterprise Investment Scheme (Subscriber guide)
When can EIS relief be claimed?  What are the conditions for EIS relief?  What are the benefits of EIS relief?

Risk-to-capital: EIS, SEIS and VCTs
What is the risk to capital condition? Why is it important?

SEIS & EIS: Qualifying trades & activities
What is a qualifying trade or activity for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief? Which trades do not qualify for relief? What are the excluded activities?

SEIS & EIS: Share issue checklist
Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) share issue checklist: Issue and allotment of shares

External link

Valyrian Bloodstock Limited v HMRC [2022] TC08578 


Small acorn
If you like our content come and join us.

Thousands of accountants and advisers and their clients use www.rossmartin.co.uk as their primary TAX resource.

Register with us now to receive our FREE weekly SME Tax News update.