Corporation Tax Act 2009 section 125

Preventing abuse of the herd basis rules

Section 125 provides anti-avoidance rules to prevent manipulation of the herd basis tax treatment when a production herd is transferred between connected parties at other than open market value.

• Where a production herd (or part of one) is transferred other than at open market price, and the parties are connected or a herd basis tax benefit is a main purpose, the anti-avoidance rule is triggered.
• A control relationship exists where one party controls the other, or both are controlled by the same person — and "body of persons" includes a partnership.
• Alternatively, the rule applies where a sole or main benefit of the transfer is a herd basis advantage, such as gaining (or losing) a herd basis election or altering the effect of the herd basis rules.
• When the rule applies, both the transferor and the transferee must calculate their trading profits as if the animals had been sold at their open market value.