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Herd Basis Election - Change of Partner

Herd basis election on change of partner. No previous election. Is stock appropriated at MV?

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A farming partnership has admitted a new partner. No herd basis election currently exists.

All cattle currently sit in stock, with a cost of £60,000. The MV of the cattle is £100,000 at present.

The change of partner allows us to make a herd basis elections (ITTOIA 2005 S124(8)).

If we were to do so, does the initial transfer to the herd take place at the MV of £100,000, or the cost of £60,000.

If this was the other way around, and we were going from having made a herd basis election, to not making one when the partnership changed, then we’d bring the cattle in at MV at that point. So you’d be forgiven for assuming the reverse applies.

ITTOIA 2005 S114 (1) merely says that no deduction is allowed for the initial cost of the herd.

ITTOIA 2005 s115 suggests that no deduction is allowed for the acquisition cost of the animal, or the cost of breeding the animal (we have a mix if acquired and bred cattle).

Do we merely remove the initial costs of the herd -  the £60,000?

Or is this treated as an appropriation to fixed assets under ITTOIA 2005 s172B, and so takes place at MV of £100,000?

The more I think about this I believe ITTOIA 2005 s127 comes into play and deems market value (it is only a minor partner being admitted, so the control condition would be met).

I’ll post the question anyway to see what thoughts folk may have.

Replies (5)

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By Tax Dragon
23rd Dec 2020 17:15

I'm not seeing s172B as relevant.

I can believe s127 is, if you want me to.

(Once upon a time, in a land far far away, I knew. But lack of ongoing need means I've kicked that arcane knowledge out of my head to make room for something else. So now I'm just looking at I guess much the same stuff as you and thinking "that sounds right".)

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By SteveHa
23rd Dec 2020 19:43

With the amount of farmers we have here in deepest darkest Wales I should really know this.

I need to do some more reading.

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Replying to SteveHa:
By Tax Dragon
23rd Dec 2020 19:59

I still would, if I was there, so... yes, if that's part of your (new) client base. (If it's not, and your brain is as rubbish as mine, you'll quickly forget.)

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24th Dec 2020 19:48

They would enter the herd basis at cost.

Worth accounting for as biological asset per FRI 102, rather than giving the bank manager a heart attack when he sees £60,000 of value removed from the balance sheet.

Have a Peaceful Christmas A.Webbers

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By whitevanman
26th Dec 2020 11:22

Haven't worked one in years but as far as I recall, there is no reason why S127 should not apply if the conditions are met. It is a measure to prevent abuse which could otherwise take place with minor partnership changes. That being so, MV applies.

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