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Reverse Premiums for Connected Persons

My client is receiving upfront payments for a lease with family member. Could you please explain how reverse premiums work for tax purposes.

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    Thanks for posting on UKtaxadvisors.com

    As you may already know reverse premiums are received as payments for entering into a lease. In the past the treatment of reverse premiums was subjective and not clearly defined by the law. However over the years, the legislation has made it clear that reverse premiums are revenue and should be taxed as such. Where the land is used for trading purposes, the reverse premiums are taxed as trading income; and where they relate to property business, then reverse premiums are treated as non-trading UK property business; and spread out over the period of the lease.

    However in your case, where your client entered into an arrangement with a connected person, then there is no option for spreading the income over the lease period, instead all the reverse premiums are charged in the year of receipt..

    Hope this helps. If you have further questions please drop a message.

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