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Companies within the tonnage tax regime cannot claim any capital allowances in respect of their expenditure on qualifying ships. Where a ship is leased the capital allowances go to the lessor and the benefit of those allowances may be shared with the lessee through a reduced level of lease rental payments charged. The legislation does not abolish capital allowances for non-tonnage tax companies that lease ships to tonnage tax companies completely, but it does place restrictions on the availability of allowances.

The restrictions are also subject to two exceptions. The first exception applies where the lessor remains responsible for operating the ship, and the second applies where the lessor grants the lease on account of short term over-capacity and the term of the lease does not exceed three years.

Where a qualifying ship is leased directly or indirectly to a tonnage tax company, the existing restrictions in the capital allowances legislation apply. Special rules relate to the following:

1. Ìý

   •ÌýÌýÌýÌý defeased leases

2. Ìý

   •ÌýÌýÌýÌý long funding leases

3. Ìý

   •ÌýÌýÌýÌý sale and leaseback arrangements and

4. Ìý

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