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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Ship leasing: Defeased leasing

Excepted forms of security: Guarantees

Certain types of guarantee are ‘excepted forms of security’, and may be disregarded when determining the extent to which a lease has been defeased (see TTM10110)
 

(See also TTM10140 regarding pre-delivery guarantees.)

Guarantees from members of the lessor’s group

For these purposes the lessor and any persons connected with the lessor are treated as the same person. It follows that any guarantee given to the lessor by its parent, or by any other member of the same group, may be disregarded.
 

(Any consideration given in return for such a guarantee would, of course, have to be taken into account as it would be treated as having been given to the lessor.)

Guarantees from members of the lessee’s group

A guarantee given by the lessee’s parent, or by any other member of the lessee’s group, may be disregarded if:
 

  • no deposit of money or other property is obtained by the lessor or any third party, and
  • any payments made under the guarantee are limited to the rental payments under the lease in respect of which the lessee is in default (and for this purpose ‘rental payments’ will include any termination rentals that may become due).

Third party guarantees

A guarantee provided by a third party may be disregarded if the security held by the third party (or by any person connected with the third party) would have been an excepted form of security inherent in the ship (see TTM10110) if it had been provided by the lessee to the lessor.

A guarantee provided by a third party may also be disregarded if:
 

  • no deposit of money or other property is obtained by the lessor or any third party; and
  • the guarantee does not involve the assumption of any obligations of the lessee under the lease in return for a payment made (directly or indirectly) by the lessee or a person connected with him; and
  • the security does not give rise to any payments to the lessor unless the lessee defaults on the rental payments under the leas; and
  • any payments made under the guarantee are limited to the rental payments in default (and for this purpose ‘rental payments’ will include any termination rentals that may become due).

References

FA00/SCH22/PARA90 (3) (lessor & persons connected with him) TTM17496
   
FA00/SCH22/PARA91 (6) (lessor & persons connected with him) TTM17501
FA00/SCH22/PARA91 (3) (security from person connected with lessee) TTM17501
FA00/SCH22/PARA91 (4) & (5) (third party guarantees) TTM17501