To date, buyers have been paying full VAT of 17.5 per cent, which compares with 2.5 per cent in southern Ireland and 5.5 per cent in France, the industry's two main competitors.
The problem has intensified since the single market came into effect on 1 January, culminating in a recent threat by Tattersalls to move its prestige Houghton Sales in Newmarket to Ireland.
The racing industry has been lobbying the Government, saying that if it stood still on the VAT issue, some 30,000 jobs would be threatened.
Some foreign owners have already moved their operations abroad, and the industry warned the Government that the four brothers of Dubai's ruling Maktoum family would probably leave Britain entirely.
Andrew Howland, sales and marketing director of Tattersalls, said if the change had not been made, many 'people would have gone out of the business. We are now going to recommend that Houghton stays in Newmarket because we can now compete on a level playing field'.
The proposal to allow buyers to reclaim VAT will require a change in the rules laid down by the Jockey Club, racing's ruling body. Lord Hartington, the Jockey Club's senior steward, said the move was 'exactly the sort of vital encouragement which owners needed at this very difficult time'.
To reclaim VAT, buyers will have to sign a form saying that they intend to seek sponsorship and appearance money. That clears the hurdle of what is and what is not a commercial activity.
The move was warmly welcomed in Newbury, another of racing's big homes.