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HMRC internal manual

Tonnage Tax Manual

Ship leasing: Long funding leases

There are different rules for the treatment of long funding leases in certain circumstances where ships are leased to tonnage tax companies. The reason for this is because a tonnage tax lessee will be unable to claim any capital allowances.

The lease of a qualifying ship to a tonnage tax company or group will not be regarded as a long funding lease if

(a) the ship is provided directly or indirectly to a tonnage tax company

(b) the tonnage tax company is responsible for the operation of the ship including appointing the master and crew and defraying all expenses, and

(c) any sub-lease by the tonnage tax company to a company not in tonnage tax must be at the market rate and not exceed seven years.

Condition (c) above only applies at a time when the tonnage tax company is leasing the ship to a non tonnage tax company.

Conditions (b) and (c) do not apply to leases finalised before 1 April 2006.

The alternative treatment for long funding leases is not available in the case of a lease if the main purpose, or one of the main purposes,

(i) of the leasing of the ship,

(ii) of a series of transactions of which the leasing of the ship is one, or

(iii) of any of the transactions in such a series

was to obtain a writing down allowance without regard to the provisions concerning defeased leasing (TTM10100 onwards), sale and lease back (TTM10200 et seq) or the quantitative restrictions (TTM10400 onwards).

If the conditions above cease to be met at any time,

(a) the existing lease terminates at the time of the cessation;

(b) another lease (the “new lease”) is entered into immediately after the cessation, and

(c) the term of the new lease is the portion of the term of the existing lease that remains unexpired at the time of the cessation


FA2000/SCH22/PARA91B (Lease to tonnage tax company or group) TTM17511
FA2000/SCH22/PARA91C (tonnage tax company to operate and manage a qualifying ship) TTM17516
FA2000/SCH22/PARA91A (4) & (5) (long funding leases - conditions for alternative treatment) TTM17506
FA2000/SCH22/PARA91D (period and rate of sublease of qualifying ship) TTM17521
FA2000/SCH22/PARA91E (anti-avoidance) TTM17526
FA2000/SCH22/PARA91F (consequences of paragraph 91A (2) (TTM17506) ceasing to have effect) TTM17531