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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific receipts: reverse premiums: meaning of ‘payment or other benefit’

The most obvious form of inducement is a cash payment by a landlord to a tenant, but there are many other forms commonly called reverse premiums. A landlord may give a tenant some benefit other than cash, or pay a sum to a third party to meet a liability of the tenant. Not all forms of inducement are taxable reverse premiums.

Broadly, only benefits procured by actually laying out money are within the meaning of the term ‘reverse premium’ for tax purposes. Inducements that represent amounts forgone or deferred by the operator, such as rent-free periods or reduced rents, are not reverse premiums. The smaller deduction for rent payable will reflect such inducements in the tenant’s taxable profits.

Apart from cash payments to the tenant, the commonest forms of inducement that are reverse premiums include the following:

  • A contribution specified to be towards the tenant’s costs, such as start up, fitting out or relocation. There is more about fitting out costs in BIM41085 - BIM41090.
  • Assumption by a landlord of the tenant’s liabilities under an existing lease, such as a continuing obligation to pay rent, or the payment of a lump sum to terminate it.
  • Other sums paid to third parties to satisfy some obligation of the tenant.
  • Payment of cash by indirect means, for example writing off a loan that is a liability of the tenant.

Examples of inducements which are not reverse premiums because they do not involve laying out money include:

  • Granting the tenant a lease at a low rent, or a rent-free period of occupation.
  • Replacement by agreement of an existing lease at an onerous rent by a new lease at a lower rent.
  • Replacement by agreement of an existing lease with some other provision the tenant has found onerous by a new lease without the onerous condition.