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HMRC internal manual

Property Income Manual

Premiums: Definition of a premium

What is a premium?

A lease is sometimes granted on terms that require the payment of both:

  • a premium - a lump sum, and
  • rent - regular payments.

In other instances, the lease may require only the payment of rent.

A premium is a sum paid on the creation of an interest in property. As such it is capital on normal principles. This led to landlords seeking premiums instead of rent to avoid tax. To counter this, legislation was introduced:

  • For IT customers: ITTOIA05/S277-283
  • For CT customers: CTA09/S217-223

Premiums are more common in some parts of the country than others and you may meet them more often in respect of large commercial and industrial properties.

In Scotland, any provision relating to a premium also includes a grassum.

An Inspector should deal with any point involving premiums on leases and similar payments.

Difference between a premium and rent

A distinction is made between:

  • a premium paid for the grant of a lease, and
  • rent due under the lease.

Confusion can arise in certain unusual cases where rent is payable in advance and so looks like a premium at first sight. For more about unusual patterns of rental payments see PIM1102