Part 2Trading income

Chapter 8Trade profits: herd basis rules

The herd basis rules

120Acquisition of new herd begun within 5 years of sale

1

This section applies for the purpose of calculating the profits of the trade if—

a

either all at once or over a period not longer than 12 months, the herd (“the old herd”) is sold, and

b

the farmer acquires or starts to acquire another production herd of the same class (“the new herd”) within 5 years of the sale.

2

Section 116 (replacement of animals in herd) applies as if a number of animals equal to—

a

the number of animals in the old herd, or

b

if smaller, the number of animals in the new herd,

had been sold from the old herd and replaced in that herd (but see section 121 (sale for reasons outside farmer's control)).

3

For the purposes of section 116, the sale proceeds of an animal that is treated as a result of subsection (2) above as if it had been—

a

sold from the old herd, and

b

replaced in that herd by another animal (“the new animal”),

are not brought into account as a receipt until the new animal is acquired.

4

If—

a

the number of animals in the new herd is smaller than the number of animals in the old herd, and

b

the difference is not substantial,

section 118 (sale of animals from herd) applies as if a number of animals equal to the difference had been sold from the old herd.

5

If the number of animals in the new herd is smaller than the number of animals in the old herd and the difference is substantial—

a

section 119 (sale of whole or substantial part of herd where replacement not begun within 5 years), or

b

section 122 (sale of substantial part of herd where replacement begun within 5 years),

applies as if a number of animals equal to the difference had been sold from the old herd.

6

If the number of animals in the new herd is larger than the number of animals in the old herd, section 115 (addition of animals to herd) applies as if a number of animals equal to the difference had been added to the old herd.

7

For the purposes of this section—

a

if the difference between the number of animals in the new herd and the number of animals in the old herd is equal to 20% or more of the number of animals in the old herd, the difference is substantial, but

b

a lesser percentage than 20% is capable of being a substantial difference depending on the circumstances of the case concerned.