FA99/S54 and FA99/SCH6 introduced special rules designed to
tax reverse premiums. The legislation says that a reverse premium
shall be treated as a revenue receipt for all the purposes of the
Taxes Acts. This means a reverse premium is automatically taxed as
a business receipt in accordance with correct accountancy practice.
A reverse premium will be a trade receipt in the hands of a tenant
who is granted the lease for the purposes of a trade, profession or
vocation. In all other circumstances, it will be charged as a
receipt of a property business.
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 chargeable.
In terms, the legislation charges 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 it applies equally,
if with necessary modifications, to the grant of any estate,
interest or right in or over land.
For 2005-06 onwards the IT rules for taxing reverse premiums are to be found in:
