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HMRC internal manual

Business Income Manual

Farming: herd basis: disposal of whole or substantial part of herd without replacement

S119 Income Tax (Trading and Other Income) Act 2005, S117 Corporation Tax Act 2009

If, within a period of twelve months, the whole or a substantial part (see BIM55525) of a production herd is sold, or dies, and is not replaced, the resulting profit or loss is excluded from the computation of trading profits. As farm animals are wasting assets for Capital Gains Tax purposes, no chargeable gain or allowable loss arises.

Care should however be taken to ensure that any profits from the sale (which may well take place at the same time) of animals which are not in the herd, such as immature animals, are brought into account. In the case of a `heafted’ flock of hill sheep (see BIM55580), the profits from sale of any immature animals (including unweaned lambs) in excess of the number necessarily required for replacements should be brought into account.


In the case of a substantial reduction, where different animals in the herd have different costs, see BIM55555 regarding identification of the animals disposed of.


If, within five years following the disposal, the farmer begins to acquire a new herd, or to build up the numbers in the herd again, see BIM55545.


Maureen has been a dairy farmer for many years with a herd basis election in force throughout. On 31 March 2009 the herd consists of 120 cows with an actual cost of acquisition of £800 each. In April 2009 she sells the entire herd for £120,000 and also sells 30 in-calf heifers (young cows in their first pregnancy) for £25,000.

At 31 March 2010 the herd account will be empty, all the herd basis election animals having been sold.

The profit of £24,000 (£120,000 - £96,000) realised from the sale of the herd animals must be excluded from the computation of Maureen’s taxable farming profits. In practice, this may be achieved by:

  • excluding the proceeds from the sale and the cost of the disposed herd animals (£120,000 and £96,000) from the trading account and crediting the profit on herd sale direct to Maureen’s capital account. No adjustment in the income tax computation is then needed; or
  • adjusting for the profit on sale in the tax computation where the sale proceeds and cost of sale have been included in the trading account. Where there is a trading profit this will be achieved by deducting £24,000 from it.
  • The £25,000 proceeds from the sale of the heifers are a normal trading receipt arising from the disposal of trading stock (heifers are immature cows and as such are excluded from the herd).


Walter has been a sheep farmer for many years with a herd basis election in force throughout. His herd account, or `flock account’, at 30 September 2008 shows:

300 ewes @ £40 £12,000
8 rams @ £300 £2,400

During the year ended 30 September 2009 he sells 120 ewes for £50 each and 3 rams for £500 each. No new animals join the flock.

  • The sale of 123 animals out of a flock of 308 is a reduction of more than 20% so is treated as a substantial reduction.
  • The £1,800 profit from the sale of the ewes and rams is tax-free.
  • The flock at 30/9/09 consists of:
180 ewes @ £40 £7,200
5 rams @ £300 £1,500