A farmer with a production herd may elect for the ‘herd basis’. Common examples of production herds are dairy cows, suckler cows, sows or a flock of breeding ewes or breeding fish.
Herd basis animals are excluded from trading stock and are treated like a capital asset. The main benefits are:
- the cost of maintaining the herd is an allowable expense; and
- any profit on the eventual disposal of the herd is tax free.
The farmer can be a sole trader, partnership or limited company, but there are statutory time limits for the election and it is irrevocable. Only mature animals can be on the herd basis: this applies to female animals that have had their first offspring and male animals when they are first used for breeding.
Herd basis election decisions must be planned carefully. There are significant tax implications, particularly:
- When starting a new herd or selling the herd
- Following a major herd reduction (such as a TB breakdown)
- When changing the business (such as taking on a new partner or using a limited company structure).
Green & Co has considerable experience assisting clients with herd basis election decisions, so please contact us today for a free initial consultation.