Meaning of ‘defeasance’

Background

As the owner of the leased asset, a finance lessor is normally entitled to claim capital allowances in respect of capital expenditure incurred in acquiring the asset.

However, a finance lessor will not be entitled to any capital allowances in respect of capital expenditure incurred on a qualifying ship provided to a tonnage tax company if the lease is defeased.

Definition

A lease will be regarded as defeased for this purpose if the leasing arrangements include provisions which have the effect of removing the whole (or the greater part) of any non-compliance risk which would otherwise fall (directly or indirectly) on the lessor.

For this purpose:

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