FC Shipping Ltd & Anor v Revenue and Customs (CAPITAL ALLOWANCES - Tonnage tax - financing structure for the purchase and lease of ships to companies within the tonnage tax regime - whether lessors failed to qualify for capital allowances as a result of statutory provisions relating to the de-risking of ship leases) [2026] UKUT 305 (TCC) (07 August 2026)

Executive summary

The Upper Tribunal dismissed FC Shipping Ltd and FB Shipping Ltd’s appeal against HMRC’s refusal of capital allowances on the ship-acquisition financing structure. It held that the First-tier Tribunal made no error of law in finding the arrangements fell within the statutory de-risking rules for ship leases under Schedule 22 to the Finance Act 2000.

Key points

• Parties: FC Shipping Ltd and FB Shipping Ltd appealed against HMRC; the dispute concerned five ships acquired and leased under a structured financing arrangement.
• Holding: appeal dismissed; the appellants were not entitled to capital allowances because the lease structure triggered the defeased-leasing provisions.
• Reasoning: the Tribunal accepted the arrangements formed a single composite transaction with layered security, prepayments, and guarantees that removed the greater part of the lessors’ non-compliance risk.
• Commercial structure: the ships were leased via a head lease to Fortis Finance (UK) Limited and sub-leased to Vroon group operating companies within the tonnage tax regime.
• Statutory context: Schedule 22 generally excludes capital allowances for tonnage tax trades, while paragraphs 89 to 91 regulate ship-leasing and de-risking.
• Sanctions/export-control angle: no sanctions, export-control, or national-security issue is addressed in the judgment; the relevance is indirect, through structured trade finance and counterparty-risk allocation.

Why it matters

The case shows that UK tax authorities and tribunals will look through layered financing and security packages where the commercial effect is to de-risk ship lease exposure beyond the statutory threshold. For sanctions and sovereign-risk practitioners, it is a reminder that ship-finance structures involving shipping groups, guarantees, and external security can be recharacterized by reference to substance, not labels.

Implications

For compliance and litigation strategy, the decision strengthens HMRC’s position against arrangements designed to preserve capital allowances through extensive credit enhancement, prepayments, and interlocking security. Parties structuring maritime finance for tonnage-tax lessees should assume that composite, bank-risk transfer structures may fail the Schedule 22 exceptions unless the security falls squarely within the statutory safe harbour.