The legislation is about the tax treatment of the recipient
of a reverse premium only. The tax consequences for a person who
pays a reverse premium are unaffected. They continue to be
determined by general principles.
If the payer is a builder or developer who pays the reverse
premium in the course of a trade, it is likely to be an allowable
deduction in computing trade profits. It is part of the cost of
realising trading stock.
If the payer is a landlord, the premium will not be an
allowable deduction in computing rental business income. The let
property for which the premium is paid will be a fixed capital
asset of the letting business. The purpose of paying the reverse
premium will be to enhance the value of that asset by securing an
income stream in respect of it. Thus, it will be a payment on
capital account.
