Income Tax Act 2007 section 194

Excluded activities: leasing of ships

Section 194 sets out the conditions under which a trade involving the chartering of ships (other than offshore installations or pleasure craft) will not be treated as an excluded activity for the purposes of the Enterprise Investment Scheme.

• A company that lets ships on charter can avoid excluded activity status if it beneficially owns all chartered ships, registers them in the UK, is solely responsible for marketing their services, and meets specific chartering conditions.
• Each charter must be for no more than 12 months, at arm's length with an unconnected party, and the company must retain principal responsibility for management decisions and virtually all ship expenses throughout the charter period.
• The arm's length requirement is waived where the charterer and the letting company are in a qualifying subsidiary relationship with each other or are both qualifying subsidiaries of the same third company.
• Even if some lettings fail to meet the conditions, the trade is not treated as an excluded activity provided those non-qualifying lettings and any other excluded activities do not together form a substantial part of the trade.