REV BN 21: Leasing and Tonnage Tax
Who is likely to be affected?
1. Shipping companies and companies providing lease financing to them.
General description of the measure
2. This is an anti-avoidance measure. It applies the current restrictions on a lessor's entitlement to capital allowances to most long-term leasing arrangements, rather than just where the lease is a finance lease. There are exceptions for ordinary chartering arrangements made between shipping companies. It also extends, to all ship leasing arrangements, the requirement that a certificate verifying entitlement to capital allowances must accompany a claim in the lessor's tax return.
Operative date
3. The new provisions apply to leases entered into on or after 19 December 2002.
Current law and proposed revisions
4. There are three restrictions on the capital allowances that can be claimed by a lessor who leases a ship to a company within the tonnage tax. These restrictions apply only to finance leases. The rules are in Part X of Schedule 22 to the Finance Act 2000:
- capital allowances are denied where the lease is defeased;
- capital allowances are denied where there are sale and leaseback arrangements; and
- capital allowances are restricted where a ship costs more than £40 million.
5. A joint certificate by the lessor and lessee must accompany claims to capital allowances on any ship that is subject to a finance lease. This certifies that the ship is not leased to a company subject to tonnage tax, or that the lease is not defeased, or that there are no sale and leaseback arrangements.
6. Under the new provision, these three restrictions will apply to all leases, subject to two exceptions, and not just to finance leases. The first exception will apply where the lessor remains responsible for operating the ship, in particular appointing the master and crew, at all times throughout the duration of the lease. The second exception will apply where the lessor grants the lease on account of short-term over-capacity and the term of the lease does not exceed three years. The requirement for certificates is extended accordingly.
7. Since the measure was announced on 19 December 2002, the Government has issued draft legislation for public comment. The results of this consultation will be reflected in the legislation to be published in the Finance Bill on 16 April.
Further advice
8. If you have any questions about this change, please contact the Public Enquiry Unit on 020 7438 6420 to 6425.
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