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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Chargeable gains: Outline

The normal capital gains tax rules apply to disposals made by tonnage tax companies except where those rules are expressly altered by the provisions in FA00/SCH22/PART8.

The main effect of the provisions in PART8 is that:

  • Certain gains (arising on the disposal of assets used in a tonnage tax trade) which would otherwise have been chargeable gains are excluded (wholly or partly) from the charge to tax.
  • Certain losses (arising on the disposal of assets used in a tonnage tax trade) which would otherwise have been allowable losses, are not to be treated as allowable losses.

See TTM08010 for details of how these gains and losses are to be dealt with.

Tonnage tax assets

The provisions of Part VIII apply only to gains and losses arising on the disposal of ‘tonnage tax assets’.

A ‘tonnage tax asset’ is one which has been brought into use and has been used wholly and exclusively for tonnage tax activities carried out by a tonnage tax company.

An asset that is used partly for non-tonnage tax activities will not be a tonnage tax asset.

However, if an asset has identifiable parts, one or more of which is used wholly and exclusively for tonnage tax activities, then that identifiable part of the asset would be a tonnage tax asset, (see TTM08100).

A ship, or a ship building contract, that has been sold or disposed of by any means by a company, before being used the any of the activities in para 19(1)(a) to (d), may not be a tonnage tax asset. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Gains or losses to be time apportioned

A gain or loss arising on an asset which is (or which has been) a tonnage tax asset will only be chargeable or allowable to the extent that it relates to periods when the asset was not a tonnage tax asset.

The overall gain or loss arising is time-apportioned according to the time that the asset was used outside Tonnage Tax as a percentage of the total time that the asset was owned by the company (or by another company in the same group).

This time apportionment applies even if at the time of the eventual disposal, the asset is no longer owned by a tonnage tax company, (see TTM08200 onwards).

Losses brought forward

Tonnage tax has no impact on capital losses brought forward from a pre-tonnage tax period. Any such losses may be carried forward and used to offset any gains that may arise outside the tonnage tax ring fence. This is in accordance with the general principles for ring fencing the regime, (see TTM08020).

Amendments to roll-over relief provisions

Where a disposal gives rise to a chargeable gain, roll-over relief will only be available if the new asset is not a tonnage tax asset.

Where such relief has been claimed in the past and the replacement asset (whose cost for tax purposes has been reduced by the rolled over gain) becomes a tonnage tax asset, for instance on the making of a tonnage tax election, then the relief already given is withdrawn.

However, to avoid an immediate charge to tax, the previously rolled over gain is held over and will not become taxable until the replacement asset is disposed of, (see TTM08300 onwards)

References

FA00/SCH22/PARA64 (gains and losses on tonnage tax assets) TTM17361