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Is the profit from the sale of your herd and flock taxable?

Tax Questions - Herds

Author: Elin Ludgate (ACA), Senior Agri Pod Leader

Profit from the sale of your herd and flock can be not taxable.

This can be the case for those farm animals which are not kept by farmers with a primary purpose of resale but for the sake of their products (for example, milk or eggs) or the offspring (for example, lambs or piglets) they produce.

The herd or flock are excluded from the trading stock and treated as productive stock. The benefits for you are:

  • the cost of maintaining the herd can be charged against tax
  • any profit on its eventual disposal will be tax-free

There are certain rules to be followed in order to qualify for the profits to be treated as not taxable:

  • The election takes effect from when the person first keeps a production herd of the specified class. When farming is carried on in partnership, an election can be made when there is a change in the composition of the partnership and a fresh election must be made with every change in partnership composition.
  • A separate election is required for each class of productive herd, for example, dairy herd, suckler herd and sheep flock will require 3 elections.
  • The initial cost of the herd is not an allowable deduction.
  • The net cost of replacing animals of the same quality in the herd is an allowable deduction.
  • The profit on the sale of a substantial reduction of the herd is not taxable – a reduction may be regarded as substantial if it amounts to 20% or more of the animals in the herd and are a permanent disposal.
  • If within 5 years of a disposal, a new herd is acquired, then the new animals will be treated as replacements and the profits which were excluded from the taxable profit previously will have to be now included as trading receipts.

An election for the herd basis:

  • must be made in writing
  • must specify the class of herds to which it relates
  • must be made within the statutory time limit
  • Is irrevocable

Let’s Talk

If you are interested in finding out more about electing for a herd, please get in touch.

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