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VAT regime change will aid buyers' cash flow

ALISTAIR DARLING'S cut in VAT goes into effect on Monday, coinciding with the opening session of the Tattersalls December Mare Sale, and potentially providing a welcome financial lift to some buyers.

Unlike Christmas shoppers looking for bargain items, for whom the 2.5 per cent reduction in value added tax would generally amount to only a few pounds of savings, buyers of mares during the first two sessions of the Tattersalls auction can splash out six and even seven-figure sums - and they pay in guineas, adding another five per cent to the purchase price in sterling. So someone buying a mare for 200,000gns could save £5,250 in tax under the new regime.

Many buyers will not be affected by the changes, which bring VAT down from 17.5 per cent to 15 per cent until January 2010, because they are not subject to the tax anyway. For example, most foreign buyers can have their purchases zero-rated for VAT purposes if they are exported, while purchasers registered under the racehorse owners VAT scheme can reclaim the tax on horses remaining in Britain.

However, VAT-registered buyers will be able to free up extra cash by saving the 2.5 per cent rather than having to reclaim it, as the process of reclaiming VAT typically takes three months, according to Paul Ryan, director of accounts for Tattersalls.

"I think people will see it as a potential benefit," he said of the tax cut. "It's hard to quantify what the effect will be, but it will be a genuine benefit to any non-VAT registered participants in the industry who normally have to stand the VAT costs."

As for buyers looking to finance purchases of high-value breeding stock, the credit crunch may not have been as harsh on equine lending as it has on mortgage loans. "Luckily we have avoided the worst of the problems other large banks have had, so we are still able to lend very similar amounts as in prior years," said Roger Weatherby, chief executive of Weatherbys Bank Ltd. "From that point of view we're still able to lend as much as in the past, and we might even consider lending more."

The bank, which Weatherby describes as "top or equal top" in terms of equine lending in Britain, only offers loans for breeding stock and uses fairly strict criteriain assessing applicants as well as their purchases. "We would work very closely with the bloodstock services side of Weatherbys to come up with our own independent valuation [of the horse]," said Weatherby.

"Those mares or stallions with a breeding history are basically a lot easier to value and they tend to get the highest-loan-to-value ratio, obviously very much in conjunction with a view of the financial strength of the borrower."

Even forthe best credentialed stock, however, the loan-to-value is unlikely to rise above 50 per cent, and applications this year have dropped off somewhat. "I would guess there are two reasons," said Weatherby. "First, people are less willing to take on the risk of actually taking on animal and they're slightly more worried about the market. And second, those who are prepared to risk are potentially waiting for prices to come down, which is sort of self-fulfilling, really."

There is another option, of limited availability, for relief in meeting Tattersalls' conditions of payment, which state the company may charge interest on unpaid amounts after 28 days. Weatherbys and Tattersalls offer ajoint scheme whereby some purchasers may be able to negotiate more lenient payment terms. The plan helps to make up for the scarcity of equine loans available from British banks.

A third and more popularly available recourse is thecredit card, which can be used for purchases up to 40,000gns. Of payment by plastic, introduced at Tattersalls about four years ago, Ryan said: "It's growing, although it tends to be for smaller purchases. Lots of foreign buyers use it, and it's actually quite a helpful facility both for the customer and for Tattersalls."




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