Corporation Tax Act 2009 section 118

Acquisition of new herd begun within 5 years of sale

Section 118 sets out the tax rules that apply when a farmer sells an entire production herd and begins acquiring a replacement herd of the same class within five years.

• Where a herd is sold (all at once or within 12 months) and a new herd of the same class is started within 5 years, the transaction is treated as a replacement of animals rather than a disposal, with sale proceeds not recognised until new animals are actually acquired.
• If the new herd is smaller than the old herd by a non-substantial amount, the shortfall animals are treated as straightforward sales from the old herd under the normal herd basis sale rules.
• If the new herd is smaller by a substantial amount (generally 20% or more of the old herd, though a lesser percentage may qualify depending on the circumstances), the shortfall is treated under the rules for sale of a whole or substantial part of a herd.
• If the new herd is larger than the old herd, the extra animals are treated as additions to the old herd and their cost is not deductible in computing trade profits.