11.4.1 The clue is in the legislation

This is the key to determining whether a payment falls outside the rules and is therefore tax free in the hands of the tenant, or other recipient, as the case may be (see 11.2). The words of the relevant provisions require that the recipient:

‘receives the payment or other benefit by way of inducement …’

Accordingly, there are two factors involved:

there must be a payment or other benefit; and

the payment or benefit must induce the tenant into entering into the lease.

No income tax charge can arise under the reverse premium rules if either of these factors is absent. For example:

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