697N Chargeable gains.

(1) Where for one or more continuous periods of at least 12 months part of an asset has been used wholly and exclusively for the purposes of the tonnage tax activities of a tonnage tax company and part has not, this section shall apply as if the part so used were a separate asset.

(2) Where subsection (1) applies, any necessary apportionment of the gain or loss on the disposal of the whole asset shall be made on a just and reasonable basis.

(3) (a) When an asset is disposed of that is or has been a tonnage tax asset—

(i) any gain or loss on the disposal, which but for this paragraph would have been the amount of the chargeable gain or the allowable loss, shall be a chargeable gain or allowable loss only to the extent (if any) to which it is referable to periods during which the asset was not a tonnage tax asset, and

(ii) any such chargeable gain or allowable loss on a disposal by a tonnage tax company shall be treated as arising otherwise than in the course of the company’s tonnage tax trade.

(b) For the purposes of paragraph (a), the proportion of the gain or loss referable to periods during which the asset was not a tonnage tax asset shall be determined by the formula:

where

P is the total length of the period since the asset was created or, if later, the last third-party disposal, and

T is the length of the period (or the aggregate length of the periods) since—

(I) the asset was created, or

(II) if later, the last third-party disposal,

during which the asset was a tonnage tax asset.

(c) In paragraph (b) a “third-party disposal” means a disposal (or deemed disposal) that is not treated as one on which neither a gain nor a loss accrues to the person making the disposal.

(4) A tonnage tax election shall not affect the deduction under section 31 as applied by section 78(2) of relevant allowable losses (within the meaning of section 78) that accrued to a company before it became a tonnage tax company.