BIM41060 - Specific receipts: reverse premiums: tax treatment of the payer
»Ê¹ÚÌåÓýapp tax consequences for a person who pays a reverse premium are unaffected by the legislation treating the payment as revenue in the hands of the recipient. »Ê¹ÚÌåÓýapp tax treatment continues 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. »Ê¹ÚÌåÓýapp let property for which the reverse premium is paid will be a fixed capital asset of the letting business. »Ê¹ÚÌåÓýapp 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.