Commentary

D7.1018 Capital allowances and ship leasing

Corporate tax
Corporate tax | Commentary

D7.1018 Capital allowances and ship leasing

Corporate tax | Commentary

D7.1018 Capital allowances and ship leasing

Where a qualifying ship is leased directly or indirectly to a tonnage tax company, the existing restrictions in the capital allowances legislation applies. In addition there are special rules relating to the following:

  1.  

    (a)     defeased leases;

  2.  

    (b)     long funding leases;

  3.  

    (c)     sale and leaseback arrangements; and

  4.  

    (d)     quantitative restrictions on capital allowances.

In light of these restrictions, a claim to capital allowances by a lessor for a qualifying ship must be accompanied by a certificate, signed jointly by the lessor and the lessee, stating that the lessee is not a tonnage tax company, that the provisions covering defeased leases and sale and leaseback arrangements do not apply and that the lease falls within the exclusion from the long funding lease regime. The lessor must notify HMRC within three months if any of the certified facts cease to be the case. There are penalties for failure to comply1.

Defeased leasing

A defeased lease is where a qualifying ship is leased to a tonnage tax company under a lease in which most of the risk of non-compliance has been removed from the lessor and any person connected with him. On such leases no capital allowances are available to the lessor in respect of any expenditure on that ship. A non-compliance risk is a risk that a loss will be sustained by any person if payments are not made under the terms of the lease2. However, this restriction does not apply to certain types of guarantee or other security

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