Income Tax (Trading and Other Income) Act 2005 section 102

Arrangements not at arm's length

Section 102 provides a special timing rule for taxing reverse premiums where the property transaction involves connected persons and is not conducted on arm's length terms.

• Where two or more parties to the property arrangements are connected persons and the terms are not arm's length, the entire reverse premium is taxed immediately rather than being spread over time.
• Terms are considered not at arm's length if they differ significantly from what would be regarded as normal and reasonable in the prevailing market conditions between unrelated parties dealing openly.
• The full amount of the reverse premium is brought into account in the period of account in which the property transaction is entered into.
• If the recipient enters the transaction for a trade they have not yet started, the reverse premium is instead brought into account in the first period of account in which the trade commences.