Income Tax (Trading and Other Income) Act 2005 section 120

Acquisition of new herd begun within 5 years of sale

Section 120 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 farmer sells the whole herd (either at once or over up to 12 months) and starts acquiring a new herd of the same class within 5 years, the transaction is treated as a replacement rather than a disposal, using the herd basis replacement rules
• Sale proceeds from animals in the old herd that are treated as replaced are not brought into account as taxable receipts until the corresponding new animals are actually acquired
• If the new herd is smaller than the old herd, the shortfall is treated either as a minor disposal (if the difference is not substantial) or as a disposal of a substantial part of the herd, with different rules applying depending on whether further replacements are made within five years
• A difference of 20% or more of the old herd size is automatically regarded as substantial, but a smaller percentage may also qualify as substantial depending on the circumstances of the particular case