Before the introduction of FA99/S54 and FA99/SCH6, there was no
specific legislation governing the tax treatment of reverse
premiums received. The correct treatment depended on general
principles, particularly the principles developed by the courts for
distinguishing capital from revenue receipts. In December 1998, the
Judicial Committee of the Privy Council specifically considered the
assessability of a reverse premium in the New Zealand case of CIR v
Wattie.
In that case the Privy Council held that the reverse premium
was a capital receipt on first principles even though, on the
facts, it was “commercially, financially and
mathematically” linked to an increased rental payable by the
tenant.
Before the Wattie decision, our view had been that the
linkage of a reverse premium to an increased rental gave it the
character of a revenue receipt. Although Privy Council decisions
have the status only of persuasive, rather than binding, authority
in the UK, we decided to follow the guidance the judgement
afforded. Following Wattie, we accept that linkage to an increased
rental will not give reverse premiums received before FA99 came
into effect the character of a revenue receipt.
A reverse premium not covered by the FA99 provisions may
still be a revenue receipt to the extent that, on the evidence, it
is in fact a contribution to a revenue expense of the tenant. An
example would be a contribution towards relocation costs.
Alternatively, the evidence might show that it is in fact a
contribution to capital expenditure such as the cost of tenant's
fixtures and fittings. In such a case, the recipient's expenditure
qualifying for capital allowances may fall to be reduced in
accordance with CAA01/S532.
