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HMRC internal manual

Business Income Manual

Specific receipts: reverse premiums: the legislation

S101, S311 Income Tax (Trading and Other Income) Act 2005, S98, S250 Corporation Tax Act 2009

A reverse premium is treated as a revenue receipt for Income Tax and Corporation Tax purposes. Where the recipient is granted the lease for the purposes of a trade (including one which has not yet commenced), the reverse premium is a trade receipt.

In all other circumstances, a reverse premium is a receipt of a property business. This is the most common situation.

This means that a reverse premium is automatically taxed as a business receipt in accordance with generally accepted accounting practice.

A reverse premium may be received by the person who takes the lease, or by someone connected with that tenant. It is always treated as a trade receipt or property business receipt of the person who receives it. See BIM41130 for the meaning of ‘connected person’.

A reverse premium is treated as a property business receipt in a variety of circumstances. Examples are amounts received:

  • by an intermediate landlord for a property to be let in a rental business;
  • by a person for premises to be occupied by that person other than for the purposes of a trade, such as the office of a landlord or an investment company;
  • by a person connected with the person who takes the lease.

The primary target of the legislation is a sum paid to induce a tenant to take a grant of a new lease. In certain circumstances only, a premium paid to a new tenant when an existing lease is assigned may also be a reverse premium.

In terms, the legislation deals with an inducement payable where any interest in land is granted. It may apply on the grant not only of a lease, but also of, say, an easement or licence to occupy. In practice, you are most likely to be concerned with the grant of a leasehold interest. This guidance is therefore written in terms of landlord, tenant and lease, but bear in mind that the legislation applies equally to the grant of any estate, interest or right in or over land.