Explanatory note (accessible version)
Updated 22 November 2023
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Clause 2: Increase in capital allowances limit for ship leasing
Summary
1. This clause increases the limits which apply to claims for capital allowances that may be made by lessors on the provision of ships leased to operators in the tonnage tax regime. The increased limits have effect in relation to leases entered into on or after 1 April 2024.
Details of the clause
2. Subsection (1) introduces amendments to paragraph 94 Schedule 22 to the Finance Act 2000 (the tonnage tax regime).
3. Subsection (2) increases the lower limit or “quantitative restriction” from £40 million to £100 million. This raises the limit on the cost of providing a ship which attracts capital allowances at the rate the provider would otherwise be entitled to (that is, if a long-life asset, at the long-life asset rate, and if not at the full rate).
4. Subsection (3) increases the higher limit from £80 million to £200 million. This means that the cost of providing a ship between £100 million and £200 million will attract capital allowances at the rate applicable to special rate expenditure. Cost of provision above £200 million will attract no capital allowances.
5. Subsection (4) is a commencement provision.
Background note
6. The limits on capital allowances that may be claimed by lessors on the provision of ships leased to operators of qualifying ships in the tonnage tax regime have not been raised since the regime was introduced in 2000. The amendments are aimed at maintaining the attractiveness of the United Kingdom tonnage tax regime and recognising the changing nature, with increased complexity and cost, of the qualifying ships.
7. This measure was announced at Spring Budget 2023. It follows a review into whether the existing capital allowances limit claimed by organisations leasing ships to tonnage tax participants remained appropriate. The review was announced at Autumn Budget 2021 alongside other reforms to tonnage tax.
8. If you have any questions about this change, or comments on the legislation, please contact Victor Baker on 03000 585490 (email: victor.j.baker@hmrc.gov.uk).