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HMRC internal manual

Tonnage Tax Manual

HM Revenue & Customs
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Ship Leasing: Quantitative restrictions on allowances

Restrictions begin to apply: Example

Partex Ltd is a leasing company claiming capital allowances at 25 per cent on its machinery and plant pool for the AP year ending 31 December 2005. The pool includes several ships, which are either non-qualifying or leased to non-tonnage tax companies.

One of the leased ships in that pool (which originally cost £50m) becomes a qualifying ship within Tonnage Tax on 30 June 2005. As at 1 January 2005 the unrelieved qualifying expenditure in the machinery and plant general pool is £8 million.

The ‘tax written value’ of the ship is

  • £4 million as at 1 January 2005 (Amount A)
  • £3.5 million as at 30 June 2005 (Amount B)

The capital allowance consequences for the accounting period ended 31 December 2005 are as follows:

  • The normal capital allowances pool

    • The amount treated as a disposal from the normal pool is Amount A: £4 million
    • The writing down allowance on the remainder of the pool is (£8 million - £4 million) x 25 per cent = £1,000,000
  • The temporary pool

    • The amount taken to the temporary pool is Amount A (£4 million) and the disposal value to be taken into account upon its closure on 30 June 2005 is Amount B: £3.5 million
    • The balancing allowance upon closure of the temporary pool is £4 million - £3.5 million = £500,000
  • The tonnage tax class pools

    • This disposal value of £3.5 is allocated 40/50 to the 25 per cent pool and 10/50 to the 10 per cent pool (in proportion to the original cost of the vessel), ie £2.8 million and £0.7 million respectively.
    • Writing-down allowances from the 25 per cent pool are (£2.8 million x 6/12 x 25%) = £350,000
    • Writing-down Allowances from the 10 per cent pool are (£0.7 million x 6/12 x 10%) = £35,000

The total capital allowances available to the lessor from this period are writing-down allowances from the normal pool, the 25 per cent pool and the 10 per cent pool of £1,000,000, £350,000 and £35,000 respectively, plus the balancing allowances from the temporary pool of £500,000, totalling £1,885,000.


Restrictions begin to apply: Introduction TTM10470
Restrictions begin to apply: Procedure TTM10480