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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Leases: granting of: payer of reverse premium

A reverse premium which has been paid by a landlord will normally be deductible under TCGA92/S38 (1) (b) as being expenditure incurred for the purpose of enhancing the value of the landlord’s interest in the land. This is because by securing the rental income payable under the lease, the value of the freehold reversion, or superior leasehold interest, will normally be enhanced.

No deduction will be due if the effect of the expenditure is not reflected in the state or nature of the landlord’s interest at the date of disposal, for example if the lease has come to an end.

A deduction may not be due if it can be shown that the bargain between the landlord and tenant was cut and dried on terms which did not include the payment of a reverse premium but was subsequently rewritten for no obvious commercial reasons to include the reverse premium.