The government used the Spring Budget 2023 to confirm three significant amendments to the UK Tonnage Tax regime:
- Opening an 18-month election window for re-entry to the UK Tonnage Tax regime;
- Permitting ship management companies to join the UK Tonnage Tax regime; and
- Increasing the limit on capital allowances for lessors who lease ships to companies, which are subject to the UK Tonnage Tax regime.
The government has now published the “Tonnage Tax (Further Opportunity for Election) Order 2023” which will implement these changes and which comes into force on 1 June 2023.
Set out below is more detail and content on these measures as well as our views of their impact and the policy behind them.
Election window for entry to UK Tonnage Tax regime
Shipping companies who have previously left the UK tonnage tax regime will be able to return to the regime for the first time in almost 18 years. The ability to return to the regime will be made possible by the introduction of an 18-month election window that will be open from 1 June 2023 to 30 November 2024. During this period, qualifying ship companies who have left the UK regime (and who, under normal circumstances, would not be allowed to return to it) will be able to elect back into the UK Tonnage Tax regime.
This election window will allow returning companies to take advantage of the substantive reforms to the Tonnage Tax regime announced in the Autumn Budget 2021 which aimed to increase the number of shipping and maritime related firms headquartered in the UK in the wake of Brexit by making it easier for shipping companies to move to the UK and by reducing unnecessary administrative burdens.
Ship management companies and the UK Tonnage Tax regime
From 1 April 2024, third-party ship management companies will be permitted to join the UK Tonnage Tax regime. This is consistent with the 2009 changes to EU Guidelines (2009/C 132/06) and until now the UK government has chosen not to extend the regime to management companies. Going forward, the ability for third-party ship management companies to join the UK Tonnage Tax regime is a positive development and should align the UK market with international competitors.
Capital allowances
Finally, in a move consistent with the government’s introduction of full expensing of capital allowances for the next three years, the government announced that, with effect from 1 April 2024, it will raise the limit on capital allowances from £80 million to £200 million for lessors who lease ships to companies which are subject to the UK Tonnage Tax regime. We expect this change to encourage the leasing of ships in the UK as lessors will no longer be subject to the £80 million cap on capital allowances – a limit that has been in place since 2000. This will effectively give ship lessors a greater tax deduction and reduce their tax bills accordingly.
Comment
In our view, these measures are a clear sign that the UK government wishes to attract new shipping business to the UK and rekindle the UK’s position as a leading shipping market, and London as a global shipping centre. This change is also consistent with the UK government’s overall mandate of ensuring that the UK maintains its financial competitiveness following Brexit.
It is hoped that such measures will not only attract new shipping business to the UK, but that they will also make lease financing of shipping assets more appealing to those leasing companies that are already based in the UK.