What is a reverse premium under section 311 of ITTOIA 2005?

A reverse premium is an inducement, typically a cash payment or benefit, provided by a landlord or outgoing tenant to encourage someone to take on a property lease. Section 311 applies when the reverse premium has not already been taxed as a trading receipt under section 101. The definition follows the meaning given in section 99 of the Act.

How is a reverse premium taxed under section 311 if the recipient has no existing property business?

The recipient is deemed to be carrying on a property business even if none previously existed. If the land is in the United Kingdom, they are treated as carrying on a UK property business under section 264. If the land is overseas, an overseas property business under section 265 applies. The reverse premium is then a receipt of that business.

What special rules apply to reverse premiums involving connected persons?

Where connected persons are involved and the arrangement terms are not at arm's length, the full amount of the reverse premium must be recognised in the period of account in which the property transaction is entered into. This prevents connected parties from deferring or spreading recognition of the taxable receipt over multiple periods.

Do the reverse premium rules in section 311 apply to premiums received before 1999?

No. These rules do not apply to reverse premiums arising before 1999. The transitional provision originally contained in section 54(2) of the Finance Act 1999 was rewritten in paragraph 72 of Schedule 2 to the Income Tax (Trading and Other Income) Act 2005, preserving the historical boundary.

Income Tax (Trading and Other Income) Act 2005 section 311

Reverse premiums

Section 311 sets out the rules for taxing reverse premiums as receipts of a property business where they are not already taxed as trade receipts.

A reverse premium that is not already taxed as a trading receipt under section 101 is treated as a receipt of a property business
The recipient is deemed to be carrying on a property business — a UK property business if the land is in the United Kingdom, or an overseas property business if the land is outside the United Kingdom
Where connected persons are involved and the terms of the arrangements are not at arm's length, the full amount of the reverse premium must be recognised in the period when the property transaction takes place
Key terms such as "reverse premium", "property arrangements" and "connected persons" carry the same meanings as defined in sections 99 to 103

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