What is a reverse premium in a lease transaction for LBTT purposes?

A reverse premium is a payment that flows in the opposite direction to what is normally expected in a lease transaction. For example, when a landlord pays a tenant a cash inducement to take on a lease, that payment is a reverse premium. Under Schedule 19, paragraph 14, such payments are excluded from chargeable consideration for LBTT.

Why do reverse premiums arise in Scottish lease transactions?

Reverse premiums typically arise because one party needs to offer a financial incentive to the other. A landlord struggling to find a tenant may offer a cash inducement to attract one, or a tenant wishing to dispose of an unwanted lease may pay someone to take it on by way of assignation.

How is LBTT calculated when a landlord pays a reverse premium to a tenant?

The reverse premium is excluded from the LBTT calculation entirely. For example, if a landlord grants a lease at £50,000 annual rent and pays the tenant a £20,000 inducement, the tenant's LBTT liability is calculated solely by reference to the £50,000 rent. The £20,000 reverse premium is disregarded.

Land and Buildings Transaction Tax (Scotland) Act 2013 section Sch 19 para 14

Q: Are reverse premiums subject to LBTT when a lease is granted, assigned or renounced?

No. Schedule 19, paragraph 14 of the Land and Buildings Transaction Tax (Scotland) Act 2013 provides that reverse premiums paid in connection with the grant, assignation or renunciation of a lease are entirely excluded from chargeable consideration and do not give rise to any LBTT liability for the recipient.

Reverse premiums in lease transactions

Schedule 19, paragraph 14 provides that reverse premiums paid in connection with the grant, assignation or renunciation of a lease are excluded from chargeable consideration for LBTT purposes.

A reverse premium is a payment that moves in the opposite direction to what you would normally expect in a lease transaction
When a lease is granted, any premium paid by the landlord to the tenant (rather than the other way round) is a reverse premium and is not subject to LBTT
When a lease is assigned, any premium paid by the outgoing tenant (assignor) to the incoming tenant (assignee) is similarly exempt from LBTT
When a lease is renounced (surrendered back to the landlord), any premium paid by the tenant to the landlord is a reverse premium and falls outside the charge to LBTT

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