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What is Lease premium?
Last verified 31 October 2026
A lease premium is a lump sum paid by a tenant up front for the grant of a lease. When the lease is 50 years or less, part of it is taxed as property income.
Why it matters to landlords
The share treated as income depends on the length of the lease: the shorter the lease, the bigger the share. If the lease is for more than 50 years, none of the premium is treated as income. HMRC's formula is the premium multiplied by (50 minus Y) divided by 50, where Y is the number of complete 12 month periods in the lease other than the first.
The taxed part is income of the year the lease is granted, on top of the rent. The rest may be a capital receipt that can bring a Capital Gains Tax charge. Under Making Tax Digital for Income Tax, lease premiums are recorded as income alongside rent. Most ordinary residential tenancies have no premium, so this mainly affects longer or commercial leases.
Example
Gita grants a 25 year lease and takes a £30,000 premium. Y is 24, so £30,000 x (50 minus 24) / 50 is £15,600. That £15,600 is property income in the year the lease is granted, in addition to the annual rent.
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