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HMRC internal manual

Tonnage Tax Manual

HM Revenue & Customs
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Ship leasing: Sale and lease-back

Exception for new ships

A lessor will not normally be entitled to capital allowances following a sale and lease-back.

However, a lessor will still be able to claim capital allowances if the sale and lease-back takes place no later than four months after the ship is first used by any person for any purpose.

In such a case, the limit on the amount which may qualify for capital allowances (see TTM10400) will still apply.

(This relaxation is intended to cover the situation where a lessor agrees to finance a new ship, but does not wish to bear the pre-delivery risk or to become involved in any pre-delivery negotiations on changes to specifications etc. In such cases it may be agreed between the prospective lessor and lessee that the lessee should place the order for the construction of the ship and take delivery of it. Only when the asset is safely in the hands of the lessee will the intended finance lease actually be entered into.)

This restriction does not apply with effect from 7 April 2005 if expenditure is incurred on enhancing the ship or converting it to another use. The amount of the expenditure must be more than 33per cent of the market value of the ship immediately after completion of the enhancement or conversion, and is equal to or greater than the market value of the interest in the ship which is the subject of the sale and lease back transaction. It applies where the transaction is affected not more than four months after the first occasion following completion of the enhancement or conversion on which the ship is brought into use.


FA00/SCH22/PARA92(3) (newly-constructed ships) TTM17536
Sale and lease-back TTM10200
CAA01/PART2 (Restrictions on capital allowances for lessors)