Understanding Reverse Premiums: Non-Cash Consideration in Lease Transactions Explained

Reverse premiums on leases and SDLT

A reverse premium in a lease transaction is a payment that moves in the opposite direction from normal. HMRC says that, on the grant, assignment or surrender of a lease, a reverse premium does not count as chargeable consideration for SDLT. This only applies to that payment itself, so any other amounts or obligations in the transaction may still need to be considered separately under the usual SDLT rules.

• On the grant of a lease, a payment from landlord to tenant can be a reverse premium and is not chargeable consideration for SDLT.
• On the assignment of a lease, a payment from assignor to assignee can be a reverse premium and is not chargeable consideration.
• On the surrender of a lease, a payment from tenant to landlord can be a reverse premium and is not chargeable consideration.
• The key issue is the direction and true nature of the payment, not just the label used in the documents.
• A reverse premium does not make the whole transaction exempt from SDLT; rent, ordinary premiums and other consideration may still be relevant.

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Reverse premiums on leases and SDLT: when a payment does not count as chargeable consideration

This page explains a narrow but important SDLT rule for lease transactions. In some lease deals, money moves in the opposite direction from what people usually expect. Where a payment is a reverse premium on the grant, assignment or surrender of a lease, the official HMRC material says it does not count as chargeable consideration for SDLT. That matters because SDLT is generally charged by reference to chargeable consideration.

What this rule is about

SDLT normally looks at what is given for a land transaction. In a lease context, readers often expect the tenant or incoming party to pay the landlord or outgoing tenant. But some transactions work the other way round. A landlord may pay a tenant to take a lease. An assignor may pay an assignee to take over a lease. A tenant may pay a landlord to accept a surrender.

The rule in the source material deals with those payments. It says that, on the grant, assignment or surrender of a lease, a reverse premium is not chargeable consideration.

This is a specific rule about lease transactions. It is concerned with whether a particular payment falls into the SDLT chargeable consideration calculation. It does not say that every lease transaction involving such a payment is free of SDLT. Other elements of the transaction may still need to be considered under the normal SDLT rules.

What the official source says

HMRC’s manual states that, on the grant, assignment or surrender of a lease, a reverse premium does not count as chargeable consideration.

It then defines a reverse premium as follows:

• on the grant of a lease, a premium moving from the landlord to the tenant
• on the assignment of a lease, a premium moving from the assignor to the assignee
• on the surrender of a lease, a premium moving from the tenant to the landlord

The key point is the direction of the payment. The payment is moving from the party giving up or creating the lease interest to the party taking or receiving the relevant step.

What this means in practice

If a payment is properly characterised as a reverse premium within this rule, that payment is left out when identifying chargeable consideration for SDLT on that lease transaction.

In practical terms:

• if a landlord pays a tenant to enter into a lease, that payment is not chargeable consideration for the grant of the lease
• if an assignor pays an assignee to take an assignment of a lease, that payment is not chargeable consideration for the assignment
• if a tenant pays a landlord to accept a surrender, that payment is not chargeable consideration for the surrender

This often arises where the lease is unattractive or commercially burdensome, so the outgoing or grantor-side party pays the other side to enter into the transaction.

The practical importance is that readers should not automatically assume that every premium connected with a lease is taxable consideration. The label “premium” is not enough by itself. You must ask who is paying whom, and in what type of lease transaction.

How to analyse it

A sensible way to approach the issue is:

• Identify the transaction. Is it the grant of a lease, an assignment of a lease, or a surrender of a lease?
• Identify the payment. Is there a premium or lump sum connected with that transaction?
• Check the direction of the payment. Is it moving in the reverse direction described by the HMRC rule?
• Ask whether you are analysing only that payment, or the whole transaction. A reverse premium may be excluded, but other consideration may still exist.
• Be careful not to confuse a reverse premium with an ordinary premium. An ordinary premium paid in the usual direction may fall to be considered under the ordinary SDLT rules.

The central question is not simply whether money changed hands. It is whether the payment is a reverse premium of the kind described in the official material.

Example

Illustration: A landlord wants to fill empty premises and agrees to pay a new tenant a lump sum as an inducement to take a lease. On the HMRC view set out in the source material, that landlord-to-tenant payment is a reverse premium on the grant of the lease, so it does not count as chargeable consideration for SDLT.

That does not automatically answer every SDLT question about the lease. For example, there may still be other aspects of the lease transaction that need to be considered separately under the normal rules. But the reverse premium itself is not chargeable consideration.

Why this can be difficult in practice

The main difficulty is characterisation. In real transactions, payments can be described in different ways in heads of terms or legal documents. A payment may be called an incentive, inducement, contribution or premium. The SDLT question is not driven only by the label. What matters is what the payment actually is, how it relates to the lease transaction, and the direction in which it moves.

Another difficulty is that lease transactions often involve several moving parts. A transaction may include rent, a premium, a contribution to works, or other contractual obligations. The source material only addresses the reverse premium point. It does not say that every payment linked to the transaction is outside SDLT.

It is also important not to treat HMRC manual wording as if it were the whole law. The manual gives HMRC’s explanation of the rule. In practice, the legal analysis still depends on the legislation and the true facts of the transaction.

Key takeaways

• A reverse premium on the grant, assignment or surrender of a lease does not count as chargeable consideration for SDLT under the HMRC guidance in the source material.
• The direction of the payment is critical: landlord to tenant on grant, assignor to assignee on assignment, and tenant to landlord on surrender.
• This rule applies to the reverse premium itself, but other parts of the lease transaction may still need separate SDLT analysis.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding Reverse Premiums: Non-Cash Consideration in Lease Transactions Explained

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