Understanding Reverse Premiums and Their Exemption from Stamp Duty Land Tax

Reverse premiums and SDLT on leases

Certain payments linked to the grant, assignment or surrender of a lease are treated as “reverse premiums” and are not counted as chargeable consideration for SDLT. This means they are left out when working out the SDLT position, although any other rent, premiums or payments in the transaction must still be considered under the normal rules.

• A reverse premium is a payment made in the opposite direction from a normal lease premium.
• Examples include a landlord paying a tenant to take a lease, an outgoing tenant paying an incoming tenant on an assignment, and a tenant paying a landlord on surrender.
• If a payment falls within the statutory definition of a reverse premium, it does not count as chargeable consideration for SDLT.
• The rule only applies to these defined payments and does not remove all SDLT consequences from the wider transaction.
• It is important to check the type of lease transaction, who pays whom, and whether there are other amounts such as rent or ordinary premiums that may still be taxable.

Scroll down for the full analysis.

Reverse premiums and SDLT: when a payment linked to a lease is not chargeable consideration

This page explains a narrow but important SDLT point. Some payments connected with leases look like consideration for a land transaction, but the legislation treats them differently. In particular, certain “reverse premiums” are not chargeable consideration for SDLT. That matters because SDLT is charged by reference to chargeable consideration.

What this rule is about

In most land transactions, SDLT looks at what is given for the transaction. For a lease, that often includes rent and any premium paid by the tenant. But not every payment connected with a lease increases the SDLT charge.

A reverse premium is, broadly, a payment that goes in the opposite direction from the sort of premium people usually expect. Instead of the tenant paying the landlord for the grant of a lease, the landlord may pay the tenant. Similarly, on an assignment or surrender, a payment may be made by the party giving up rights rather than by the party receiving them.

The source material is dealing with whether those payments fall within chargeable consideration for SDLT. Its answer is that they do not.

What the official source says

The official material states that a reverse premium includes:

• a premium paid by a landlord to a tenant in relation to the grant of a lease
• a premium paid by the assignor to the assignee in relation to the assignment of a lease
• a premium paid by the tenant to the landlord in relation to the surrender of a lease

It then states that these payments do not count as chargeable consideration for SDLT purposes.

The cited legislative reference is Schedule 17A paragraph 18 to Finance Act 2003, which contains the definition of reverse premium.

What this means in practice

If a payment falls within the definition of a reverse premium, it is left out when working out chargeable consideration for SDLT.

That can matter in three common lease situations:

• Grant of a lease: if a landlord pays an incoming tenant an inducement to take the lease, that payment is not chargeable consideration for SDLT.
• Assignment of a lease: if the outgoing tenant pays the incoming tenant to take over the lease, that payment is not chargeable consideration.
• Surrender of a lease: if the tenant pays the landlord in connection with giving up the lease, that payment is not chargeable consideration.

The practical point is not that the transaction is ignored altogether. It is that this particular payment is not included as chargeable consideration for SDLT. If there are other amounts that do count as chargeable consideration under the normal rules, those still need to be considered separately.

How to analyse it

A sensible way to approach the issue is to ask:

• What is the underlying land transaction: grant, assignment, or surrender of a lease?
• Who is making the payment, and who is receiving it?
• Is the payment made in relation to that lease transaction?
• Does the payment match one of the categories of reverse premium identified in the legislation and official material?
• Are there any other payments, rent, or obligations in the transaction that may still amount to chargeable consideration?

The direction of the payment is critical. A normal premium is usually paid by the person acquiring the lease interest. A reverse premium is paid the other way round in one of the defined lease contexts.

It is also important not to over-apply the rule. The source material only says that reverse premiums do not count as chargeable consideration. It does not say that every payment connected with a lease is a reverse premium, or that all SDLT consequences disappear.

Example

Illustration: a landlord wants to fill vacant commercial premises and agrees to pay an incoming tenant a cash inducement if the tenant takes a new lease. That payment is a reverse premium. On the basis of the source material, it is not chargeable consideration for SDLT.

But if the tenant also pays a lease premium to the landlord, or agrees to pay rent, those amounts would need to be considered under the ordinary SDLT rules. The reverse premium point only removes the landlord-to-tenant inducement from chargeable consideration.

Why this can be difficult in practice

The main difficulty is characterisation. A payment may be described commercially in different ways, and labels do not decide the SDLT treatment. The real question is whether the payment is, in substance, a reverse premium of the kind defined by the legislation.

Another difficulty is that lease transactions often involve several moving parts at once: rent, premiums, inducements, fit-out contributions, dilapidations settlements, or other contractual payments. The source material only addresses reverse premiums. It does not resolve the treatment of every other payment that may appear in the documents.

There can also be uncertainty where the payment is only indirectly connected with the lease transaction, or where the documents bundle several obligations together. In those cases, the facts and the drafting matter.

Key takeaways

• A reverse premium is a defined type of payment connected with the grant, assignment, or surrender of a lease.
• If a payment is a reverse premium, it does not count as chargeable consideration for SDLT.
• You still need to identify and analyse any other amounts in the transaction that may be chargeable consideration under the normal SDLT rules.

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 and Their Exemption from Stamp Duty Land Tax

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