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What is a reverse premium?

Particularly during times of economic recession, landlords often offer inducements such as capital payments to their prospective tenants. Any such payment by the landlord is called a 'reverse premium' if it is made in connection with a transaction that gives the recipient (or a person connected with the recipient) an estate, interest or right over land¹.

It is important to identify an item as a reverse premium correctly, as they are classified as revenue items, despite being connected with land. HMRC provides guidance on what constitutes a reverse premium². In general, the legislation will only tax benefits procured by the actual laying out of money. It does not catch receipts that represent amounts foregone or deferred by the landlord, such as rent-free or reduced rent periods. The reason for this is that the smaller deduction charged to the tenant's profit and loss account for the reduced rent payable will already reflect the inducement, thereby increasing the profit.

In addition, the replacement (by agreement) of an existing lease at an