diff --git a/lnwallet/aux_signer.go b/lnwallet/aux_signer.go
index 90a4325f60e..bfba4c12b74 100644
--- a/lnwallet/aux_signer.go
+++ b/lnwallet/aux_signer.go
@@ -10,9 +10,20 @@ import (
 	"github.com/lightningnetwork/lnd/tlv"
 )
 
-// htlcCustomSigType is the TLV type that is used to encode the custom HTLC
-// signatures within the custom data for an existing HTLC.
-var htlcCustomSigType tlv.TlvType65543
+var (
+	// htlcCustomSigType is the TLV type that is used to encode the custom
+	// HTLC signatures within the custom data for an existing HTLC.
+	htlcCustomSigType tlv.TlvType65543
+
+	// NoOpHtlcType is the TLV that that's used in the update_add_htlc
+	// message to indicate the presence of a noop HTLC. This has no encoded
+	// value, its presence is used to indicate that the HTLC is a noop.
+	NoOpHtlcType tlv.TlvType65544
+)
+
+// NoopAddHtlcType is the (golang) type of the TLV record that's used to signal
+// that an HTLC should be a noop HTLC.
+type NoopAddHtlcType = tlv.TlvType65544
 
 // AuxHtlcView is a struct that contains a safe copy of an HTLC view that can
 // be used by aux components.
@@ -116,6 +127,18 @@ func (a *AuxHtlcDescriptor) AddHeight(
 	return a.addCommitHeightLocal
 }
 
+// IsAdd checks if the entry type of the Aux HTLC Descriptor is an add type.
+func (a *AuxHtlcDescriptor) IsAdd() bool {
+	switch a.EntryType {
+	case Add:
+		fallthrough
+	case NoOpAdd:
+		return true
+	default:
+		return false
+	}
+}
+
 // RemoveHeight returns the height at which the HTLC was removed from the
 // commitment chain. The height is returned based on the chain the HTLC is being
 // removed from (local or remote chain).
diff --git a/lnwallet/channel.go b/lnwallet/channel.go
index ee45bf943d7..d4ac957b9fc 100644
--- a/lnwallet/channel.go
+++ b/lnwallet/channel.go
@@ -551,6 +551,12 @@ func (lc *LightningChannel) diskHtlcToPayDesc(feeRate chainfee.SatPerKWeight,
 		remoteOutputIndex = htlc.OutputIndex
 	}
 
+	customRecords := htlc.CustomRecords.Copy()
+
+	entryType := entryTypeForHtlc(
+		customRecords, lc.channelState.ChanType,
+	)
+
 	// With the scripts reconstructed (depending on if this is our commit
 	// vs theirs or a pending commit for the remote party), we can now
 	// re-create the original payment descriptor.
@@ -559,7 +565,7 @@ func (lc *LightningChannel) diskHtlcToPayDesc(feeRate chainfee.SatPerKWeight,
 		RHash:              htlc.RHash,
 		Timeout:            htlc.RefundTimeout,
 		Amount:             htlc.Amt,
-		EntryType:          Add,
+		EntryType:          entryType,
 		HtlcIndex:          htlc.HtlcIndex,
 		LogIndex:           htlc.LogIndex,
 		OnionBlob:          htlc.OnionBlob,
@@ -570,7 +576,7 @@ func (lc *LightningChannel) diskHtlcToPayDesc(feeRate chainfee.SatPerKWeight,
 		theirPkScript:      theirP2WSH,
 		theirWitnessScript: theirWitnessScript,
 		BlindingPoint:      htlc.BlindingPoint,
-		CustomRecords:      htlc.CustomRecords.Copy(),
+		CustomRecords:      customRecords,
 	}, nil
 }
 
@@ -1100,6 +1106,10 @@ func (lc *LightningChannel) logUpdateToPayDesc(logUpdate *channeldb.LogUpdate,
 			},
 		}
 
+		pd.EntryType = entryTypeForHtlc(
+			pd.CustomRecords, lc.channelState.ChanType,
+		)
+
 		isDustRemote := HtlcIsDust(
 			lc.channelState.ChanType, false, lntypes.Remote,
 			feeRate, wireMsg.Amount.ToSatoshis(), remoteDustLimit,
@@ -1336,6 +1346,10 @@ func (lc *LightningChannel) remoteLogUpdateToPayDesc(logUpdate *channeldb.LogUpd
 			},
 		}
 
+		pd.EntryType = entryTypeForHtlc(
+			pd.CustomRecords, lc.channelState.ChanType,
+		)
+
 		// We don't need to generate an htlc script yet. This will be
 		// done once we sign our remote commitment.
 
@@ -1736,7 +1750,7 @@ func (lc *LightningChannel) restorePendingRemoteUpdates(
 		// but this Add restoration was a no-op as every single one of
 		// these Adds was already restored since they're all incoming
 		// htlcs on the local commitment.
-		if payDesc.EntryType == Add {
+		if payDesc.isAdd() {
 			continue
 		}
 
@@ -1881,7 +1895,7 @@ func (lc *LightningChannel) restorePendingLocalUpdates(
 		}
 
 		switch payDesc.EntryType {
-		case Add:
+		case Add, NoOpAdd:
 			// The HtlcIndex of the added HTLC _must_ be equal to
 			// the log's htlcCounter at this point. If it is not we
 			// panic to catch this.
@@ -2993,6 +3007,19 @@ func (lc *LightningChannel) evaluateHTLCView(view *HtlcView,
 			)
 			if rmvHeight == 0 {
 				switch {
+				// If this a noop add, then when we settle the
+				// HTLC, we actually credit the sender with the
+				// amount again, thus making it a noop. Noop
+				// HTLCs are only triggered by external software
+				// using the AuxComponents and only for channels
+				// that use the custom tapscript root.
+				case entry.EntryType == Settle &&
+					addEntry.EntryType == NoOpAdd:
+
+					lc.evaluateNoOpHtlc(
+						entry, party, &balanceDeltas,
+					)
+
 				// If an incoming HTLC is being settled, then
 				// this means that the preimage has been
 				// received by the settling party Therefore, we
@@ -3030,7 +3057,7 @@ func (lc *LightningChannel) evaluateHTLCView(view *HtlcView,
 		liveAdds := fn.Filter(
 			view.Updates.GetForParty(party),
 			func(pd *paymentDescriptor) bool {
-				isAdd := pd.EntryType == Add
+				isAdd := pd.isAdd()
 				shouldSkip := skip.GetForParty(party).
 					Contains(pd.HtlcIndex)
 
@@ -3069,7 +3096,7 @@ func (lc *LightningChannel) evaluateHTLCView(view *HtlcView,
 	// corresponding to whoseCommitmentChain.
 	isUncommitted := func(update *paymentDescriptor) bool {
 		switch update.EntryType {
-		case Add:
+		case Add, NoOpAdd:
 			return update.addCommitHeights.GetForParty(
 				whoseCommitChain,
 			) == 0
@@ -3145,6 +3172,70 @@ func (lc *LightningChannel) fetchParent(entry *paymentDescriptor,
 	return addEntry, nil
 }
 
+// balanceAboveReserve checks if the balance for the provided party is above the
+// configured reserve. It also uses the balance delta for the party, to account
+// for entry amounts that have been processed already.
+func balanceAboveReserve(party lntypes.ChannelParty, delta int64,
+	channel *channeldb.OpenChannel) bool {
+
+	channel.RLock()
+	defer channel.RUnlock()
+
+	c := channel
+
+	localReserve := lnwire.NewMSatFromSatoshis(c.LocalChanCfg.ChanReserve)
+	remoteReserve := lnwire.NewMSatFromSatoshis(c.RemoteChanCfg.ChanReserve)
+
+	switch {
+	case party.IsLocal():
+		totalLocal := c.LocalCommitment.LocalBalance
+		if delta >= 0 {
+			totalLocal += lnwire.MilliSatoshi(delta)
+		} else {
+			totalLocal -= lnwire.MilliSatoshi(-1 * delta)
+		}
+
+		return totalLocal > localReserve
+
+	case party.IsRemote():
+		totalRemote := c.RemoteCommitment.RemoteBalance
+		if delta >= 0 {
+			totalRemote += lnwire.MilliSatoshi(delta)
+		} else {
+			totalRemote -= lnwire.MilliSatoshi(-1 * delta)
+		}
+
+		return totalRemote > remoteReserve
+	}
+
+	return false
+}
+
+// evaluateNoOpHtlc applies the balance delta based on whether the NoOp HTLC is
+// considered effective. This depends on whether the receiver is already above
+// the channel reserve.
+func (lc *LightningChannel) evaluateNoOpHtlc(entry *paymentDescriptor,
+	party lntypes.ChannelParty, balanceDeltas *lntypes.Dual[int64]) {
+
+	channel := lc.channelState
+	delta := balanceDeltas.GetForParty(party)
+
+	// If the receiver has existing balance above reserve then we go ahead
+	// with crediting the amount back to the sender. Otherwise we give the
+	// amount to the receiver. We do this because the receiver needs some
+	// above reserve balance to anchor the AuxBlob. We also pass in the so
+	// far calculated delta for the party, as that's effectively part of
+	// their balance within this view computation.
+	if balanceAboveReserve(party, delta, channel) {
+		party = party.CounterParty()
+	}
+
+	d := int64(entry.Amount)
+	balanceDeltas.ModifyForParty(party, func(acc int64) int64 {
+		return acc + d
+	})
+}
+
 // generateRemoteHtlcSigJobs generates a series of HTLC signature jobs for the
 // sig pool, along with a channel that if closed, will cancel any jobs after
 // they have been submitted to the sigPool. This method is to be used when
@@ -3833,7 +3924,7 @@ func (lc *LightningChannel) validateCommitmentSanity(theirLogCounter,
 		// Go through all updates, checking that they don't violate the
 		// channel constraints.
 		for _, entry := range updates {
-			if entry.EntryType == Add {
+			if entry.isAdd() {
 				// An HTLC is being added, this will add to the
 				// number and amount in flight.
 				amtInFlight += entry.Amount
@@ -5712,7 +5803,7 @@ func (lc *LightningChannel) ReceiveRevocation(revMsg *lnwire.RevokeAndAck) (
 		// don't re-forward any already processed HTLC's after a
 		// restart.
 		switch {
-		case pd.EntryType == Add && committedAdd && shouldFwdAdd:
+		case pd.isAdd() && committedAdd && shouldFwdAdd:
 			// Construct a reference specifying the location that
 			// this forwarded Add will be written in the forwarding
 			// package constructed at this remote height.
@@ -5731,7 +5822,7 @@ func (lc *LightningChannel) ReceiveRevocation(revMsg *lnwire.RevokeAndAck) (
 				addUpdatesToForward, pd.toLogUpdate(),
 			)
 
-		case pd.EntryType != Add && committedRmv && shouldFwdRmv:
+		case !pd.isAdd() && committedRmv && shouldFwdRmv:
 			// Construct a reference specifying the location that
 			// this forwarded Settle/Fail will be written in the
 			// forwarding package constructed at this remote height.
@@ -5970,7 +6061,7 @@ func (lc *LightningChannel) GetDustSum(whoseCommit lntypes.ChannelParty,
 	// Grab all of our HTLCs and evaluate against the dust limit.
 	for e := lc.updateLogs.Local.Front(); e != nil; e = e.Next() {
 		pd := e.Value
-		if pd.EntryType != Add {
+		if !pd.isAdd() {
 			continue
 		}
 
@@ -5989,7 +6080,7 @@ func (lc *LightningChannel) GetDustSum(whoseCommit lntypes.ChannelParty,
 	// Grab all of their HTLCs and evaluate against the dust limit.
 	for e := lc.updateLogs.Remote.Front(); e != nil; e = e.Next() {
 		pd := e.Value
-		if pd.EntryType != Add {
+		if !pd.isAdd() {
 			continue
 		}
 
@@ -6062,9 +6153,12 @@ func (lc *LightningChannel) MayAddOutgoingHtlc(amt lnwire.MilliSatoshi) error {
 func (lc *LightningChannel) htlcAddDescriptor(htlc *lnwire.UpdateAddHTLC,
 	openKey *models.CircuitKey) *paymentDescriptor {
 
+	customRecords := htlc.CustomRecords.Copy()
+	entryType := entryTypeForHtlc(customRecords, lc.channelState.ChanType)
+
 	return &paymentDescriptor{
 		ChanID:         htlc.ChanID,
-		EntryType:      Add,
+		EntryType:      entryType,
 		RHash:          PaymentHash(htlc.PaymentHash),
 		Timeout:        htlc.Expiry,
 		Amount:         htlc.Amount,
@@ -6073,7 +6167,7 @@ func (lc *LightningChannel) htlcAddDescriptor(htlc *lnwire.UpdateAddHTLC,
 		OnionBlob:      htlc.OnionBlob,
 		OpenCircuitKey: openKey,
 		BlindingPoint:  htlc.BlindingPoint,
-		CustomRecords:  htlc.CustomRecords.Copy(),
+		CustomRecords:  customRecords,
 	}
 }
 
@@ -6126,9 +6220,12 @@ func (lc *LightningChannel) ReceiveHTLC(htlc *lnwire.UpdateAddHTLC) (uint64,
 			lc.updateLogs.Remote.htlcCounter)
 	}
 
+	customRecords := htlc.CustomRecords.Copy()
+	entryType := entryTypeForHtlc(customRecords, lc.channelState.ChanType)
+
 	pd := &paymentDescriptor{
 		ChanID:        htlc.ChanID,
-		EntryType:     Add,
+		EntryType:     entryType,
 		RHash:         PaymentHash(htlc.PaymentHash),
 		Timeout:       htlc.Expiry,
 		Amount:        htlc.Amount,
@@ -6136,7 +6233,7 @@ func (lc *LightningChannel) ReceiveHTLC(htlc *lnwire.UpdateAddHTLC) (uint64,
 		HtlcIndex:     lc.updateLogs.Remote.htlcCounter,
 		OnionBlob:     htlc.OnionBlob,
 		BlindingPoint: htlc.BlindingPoint,
-		CustomRecords: htlc.CustomRecords.Copy(),
+		CustomRecords: customRecords,
 	}
 
 	localACKedIndex := lc.commitChains.Remote.tail().messageIndices.Local
@@ -9825,7 +9922,7 @@ func (lc *LightningChannel) unsignedLocalUpdates(remoteMessageIndex,
 
 		// We don't save add updates as they are restored from the
 		// remote commitment in restoreStateLogs.
-		if pd.EntryType == Add {
+		if pd.isAdd() {
 			continue
 		}
 
@@ -9999,3 +10096,17 @@ func (lc *LightningChannel) ZeroConfRealScid() fn.Option[lnwire.ShortChannelID]
 
 	return fn.None[lnwire.ShortChannelID]()
 }
+
+// entryTypeForHtlc returns the add type that should be used for adding this
+// HTLC to the channel. If the channel has a tapscript root and the HTLC carries
+// the NoOp bit in the custom records then we'll convert this to a NoOp add.
+func entryTypeForHtlc(records lnwire.CustomRecords,
+	chanType channeldb.ChannelType) updateType {
+
+	noopTLV := uint64(NoOpHtlcType.TypeVal())
+	if _, ok := records[noopTLV]; ok && chanType.HasTapscriptRoot() {
+		return NoOpAdd
+	}
+
+	return Add
+}
diff --git a/lnwallet/channel_test.go b/lnwallet/channel_test.go
index 0a0ca261c02..69bb11d46a8 100644
--- a/lnwallet/channel_test.go
+++ b/lnwallet/channel_test.go
@@ -3232,7 +3232,9 @@ func restartChannel(channelOld *LightningChannel) (*LightningChannel, error) {
 // he receives Alice's CommitSig message, then Alice concludes that she needs
 // to re-send the CommitDiff. After the diff has been sent, both nodes should
 // resynchronize and be able to complete the dangling commit.
-func testChanSyncOweCommitment(t *testing.T, chanType channeldb.ChannelType) {
+func testChanSyncOweCommitment(t *testing.T,
+	chanType channeldb.ChannelType, noop bool) {
+
 	// Create a test channel which will be used for the duration of this
 	// unittest. The channel will be funded evenly with Alice having 5 BTC,
 	// and Bob having 5 BTC.
@@ -3242,6 +3244,17 @@ func testChanSyncOweCommitment(t *testing.T, chanType channeldb.ChannelType) {
 	var fakeOnionBlob [lnwire.OnionPacketSize]byte
 	copy(fakeOnionBlob[:], bytes.Repeat([]byte{0x05}, lnwire.OnionPacketSize))
 
+	// Let's create the noop add TLV record. This will only be
+	// effective for channels that have a tapscript root.
+	noopRecord := tlv.NewPrimitiveRecord[NoopAddHtlcType, bool](true)
+	records, err := tlv.RecordsToMap([]tlv.Record{noopRecord.Record()})
+	require.NoError(t, err)
+
+	// If the noop flag is not set for this test, nullify the records.
+	if !noop {
+		records = nil
+	}
+
 	// We'll start off the scenario with Bob sending 3 HTLC's to Alice in a
 	// single state update.
 	htlcAmt := lnwire.NewMSatFromSatoshis(20000)
@@ -3251,10 +3264,11 @@ func testChanSyncOweCommitment(t *testing.T, chanType channeldb.ChannelType) {
 	for i := 0; i < 3; i++ {
 		rHash := sha256.Sum256(bobPreimage[:])
 		h := &lnwire.UpdateAddHTLC{
-			PaymentHash: rHash,
-			Amount:      htlcAmt,
-			Expiry:      uint32(10),
-			OnionBlob:   fakeOnionBlob,
+			PaymentHash:   rHash,
+			Amount:        htlcAmt,
+			Expiry:        uint32(10),
+			OnionBlob:     fakeOnionBlob,
+			CustomRecords: records,
 		}
 
 		htlcIndex, err := bobChannel.AddHTLC(h, nil)
@@ -3290,15 +3304,17 @@ func testChanSyncOweCommitment(t *testing.T, chanType channeldb.ChannelType) {
 			t.Fatalf("unable to settle htlc: %v", err)
 		}
 	}
+
 	var alicePreimage [32]byte
 	copy(alicePreimage[:], bytes.Repeat([]byte{0xaa}, 32))
 	rHash := sha256.Sum256(alicePreimage[:])
 	aliceHtlc := &lnwire.UpdateAddHTLC{
-		ChanID:      chanID,
-		PaymentHash: rHash,
-		Amount:      htlcAmt,
-		Expiry:      uint32(10),
-		OnionBlob:   fakeOnionBlob,
+		ChanID:        chanID,
+		PaymentHash:   rHash,
+		Amount:        htlcAmt,
+		Expiry:        uint32(10),
+		OnionBlob:     fakeOnionBlob,
+		CustomRecords: records,
 	}
 	aliceHtlcIndex, err := aliceChannel.AddHTLC(aliceHtlc, nil)
 	require.NoError(t, err, "unable to add alice's htlc")
@@ -3548,6 +3564,7 @@ func TestChanSyncOweCommitment(t *testing.T) {
 	testCases := []struct {
 		name     string
 		chanType channeldb.ChannelType
+		noop     bool
 	}{
 		{
 			name:     "tweakless",
@@ -3571,10 +3588,18 @@ func TestChanSyncOweCommitment(t *testing.T) {
 				channeldb.SimpleTaprootFeatureBit |
 				channeldb.TapscriptRootBit,
 		},
+		{
+			name: "tapscript root with noop",
+			chanType: channeldb.SingleFunderTweaklessBit |
+				channeldb.AnchorOutputsBit |
+				channeldb.SimpleTaprootFeatureBit |
+				channeldb.TapscriptRootBit,
+			noop: true,
+		},
 	}
 	for _, tc := range testCases {
 		t.Run(tc.name, func(t *testing.T) {
-			testChanSyncOweCommitment(t, tc.chanType)
+			testChanSyncOweCommitment(t, tc.chanType, tc.noop)
 		})
 	}
 }
@@ -11339,3 +11364,393 @@ func TestCreateCooperativeCloseTx(t *testing.T) {
 		})
 	}
 }
+
+// TestNoopAddSettle tests that adding and settling an HTLC with no-op, no
+// balances are actually affected.
+func TestNoopAddSettle(t *testing.T) {
+	t.Parallel()
+
+	// Create a test channel which will be used for the duration of this
+	// unittest. The channel will be funded evenly with Alice having 5 BTC,
+	// and Bob having 5 BTC.
+	chanType := channeldb.SimpleTaprootFeatureBit |
+		channeldb.AnchorOutputsBit | channeldb.ZeroHtlcTxFeeBit |
+		channeldb.SingleFunderTweaklessBit | channeldb.TapscriptRootBit
+	aliceChannel, bobChannel, err := CreateTestChannels(
+		t, chanType,
+	)
+	require.NoError(t, err, "unable to create test channels")
+
+	const htlcAmt = 10_000
+	htlc, preimage := createHTLC(0, htlcAmt)
+	noopRecord := tlv.NewPrimitiveRecord[tlv.TlvType65544, bool](true)
+
+	records, err := tlv.RecordsToMap([]tlv.Record{noopRecord.Record()})
+	require.NoError(t, err)
+	htlc.CustomRecords = records
+
+	aliceBalance := aliceChannel.channelState.LocalCommitment.LocalBalance
+	bobBalance := bobChannel.channelState.LocalCommitment.LocalBalance
+
+	// Have Alice add the HTLC, then lock it in with a new state transition.
+	aliceHtlcIndex, err := aliceChannel.AddHTLC(htlc, nil)
+	require.NoError(t, err, "alice unable to add htlc")
+	bobHtlcIndex, err := bobChannel.ReceiveHTLC(htlc)
+	require.NoError(t, err, "bob unable to receive htlc")
+
+	err = ForceStateTransition(aliceChannel, bobChannel)
+	require.NoError(t, err)
+
+	// We'll have Bob settle the HTLC, then force another state transition.
+	err = bobChannel.SettleHTLC(preimage, bobHtlcIndex, nil, nil, nil)
+	require.NoError(t, err, "bob unable to settle inbound htlc")
+	err = aliceChannel.ReceiveHTLCSettle(preimage, aliceHtlcIndex)
+	require.NoError(t, err)
+
+	err = ForceStateTransition(aliceChannel, bobChannel)
+	require.NoError(t, err)
+
+	aliceBalanceFinal := aliceChannel.channelState.LocalCommitment.LocalBalance //nolint:ll
+	bobBalanceFinal := bobChannel.channelState.LocalCommitment.LocalBalance
+
+	// The balances of Alice and Bob should be the exact same and shouldn't
+	// have changed.
+	require.Equal(t, aliceBalance, aliceBalanceFinal)
+	require.Equal(t, bobBalance, bobBalanceFinal)
+}
+
+// TestNoopAddBelowReserve tests that the noop HTLCs behave as expected when
+// added over a channel where a party is below their reserve.
+func TestNoopAddBelowReserve(t *testing.T) {
+	t.Parallel()
+
+	// Create a test channel which will be used for the duration of this
+	// unittest. The channel will be funded evenly with Alice having 5 BTC,
+	// and Bob having 5 BTC.
+	chanType := channeldb.SimpleTaprootFeatureBit |
+		channeldb.AnchorOutputsBit | channeldb.ZeroHtlcTxFeeBit |
+		channeldb.SingleFunderTweaklessBit | channeldb.TapscriptRootBit
+	aliceChan, bobChan, err := CreateTestChannels(t, chanType)
+	require.NoError(t, err, "unable to create test channels")
+
+	aliceBalance := aliceChan.channelState.LocalCommitment.LocalBalance
+	bobBalance := bobChan.channelState.LocalCommitment.LocalBalance
+
+	const (
+		// htlcAmt is the default HTLC amount to be used, epxressed in
+		// milli-satoshis.
+		htlcAmt = lnwire.MilliSatoshi(500_000)
+
+		// numHtlc is the total number of HTLCs to be added/settled over
+		// the channel.
+		numHtlc = 20
+	)
+
+	// Let's create the noop add TLV record to be used in all added HTLCs
+	// over the channel.
+	noopRecord := tlv.NewPrimitiveRecord[NoopAddHtlcType, bool](true)
+	records, err := tlv.RecordsToMap([]tlv.Record{noopRecord.Record()})
+	require.NoError(t, err)
+
+	// Let's set Bob's reserve to whatever his local balance is, minus half
+	// of the total amount to be added by the total HTLCs. This way we can
+	// also verify that the noop-adds will start the nullification only once
+	// Bob is above reserve.
+	reserveTarget := (numHtlc / 2) * htlcAmt
+	bobReserve := bobBalance + reserveTarget
+
+	bobChan.channelState.LocalChanCfg.ChanReserve =
+		bobReserve.ToSatoshis()
+
+	aliceChan.channelState.RemoteChanCfg.ChanReserve =
+		bobReserve.ToSatoshis()
+
+	// Add and settle all the HTLCs over the channel.
+	for i := range numHtlc {
+		htlc, preimage := createHTLC(i, htlcAmt)
+		htlc.CustomRecords = records
+
+		aliceHtlcIndex, err := aliceChan.AddHTLC(htlc, nil)
+		require.NoError(t, err, "alice unable to add htlc")
+		bobHtlcIndex, err := bobChan.ReceiveHTLC(htlc)
+		require.NoError(t, err, "bob unable to receive htlc")
+
+		require.NoError(t, ForceStateTransition(aliceChan, bobChan))
+
+		// We'll have Bob settle the HTLC, then force another state
+		// transition.
+		err = bobChan.SettleHTLC(preimage, bobHtlcIndex, nil, nil, nil)
+		require.NoError(t, err, "bob unable to settle inbound htlc")
+		err = aliceChan.ReceiveHTLCSettle(preimage, aliceHtlcIndex)
+		require.NoError(t, err)
+		require.NoError(t, ForceStateTransition(aliceChan, bobChan))
+	}
+
+	// We need to kick the state transition one last time for the balances
+	// to be updated on both commitments.
+	require.NoError(t, ForceStateTransition(aliceChan, bobChan))
+
+	aliceBalanceFinal := aliceChan.channelState.LocalCommitment.LocalBalance
+	bobBalanceFinal := bobChan.channelState.LocalCommitment.LocalBalance
+
+	// The balances of Alice and Bob must have changed exactly by half the
+	// total number of HTLCs we added over the channel, plus one to get Bob
+	// above the reserve. Bob's final balance should be as much as his
+	// reserve plus one extra default HTLC amount.
+	require.Equal(t, aliceBalance-htlcAmt*(numHtlc/2+1), aliceBalanceFinal)
+	require.Equal(t, bobBalance+htlcAmt*(numHtlc/2+1), bobBalanceFinal)
+	require.Equal(
+		t, bobBalanceFinal.ToSatoshis(),
+		bobChan.LocalChanReserve()+htlcAmt.ToSatoshis(),
+	)
+}
+
+// TestEvaluateNoOpHtlc tests that the noop htlc evaluator helper function
+// produces the expected balance deltas from various starting states.
+func TestEvaluateNoOpHtlc(t *testing.T) {
+	testCases := []struct {
+		name                        string
+		localBalance, remoteBalance btcutil.Amount
+		localReserve, remoteReserve btcutil.Amount
+		entry                       *paymentDescriptor
+		receiver                    lntypes.ChannelParty
+		balanceDeltas               *lntypes.Dual[int64]
+		expectedDeltas              *lntypes.Dual[int64]
+	}{
+		{
+			name: "local above reserve",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver: lntypes.Local,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 2_500,
+			},
+		},
+		{
+			name: "remote above reserve",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver: lntypes.Remote,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  2_500,
+				Remote: 0,
+			},
+		},
+		{
+			name: "local below reserve",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:     lntypes.Local,
+			localBalance: 25_000,
+			localReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  2_500,
+				Remote: 0,
+			},
+		},
+		{
+			name: "remote below reserve",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:      lntypes.Remote,
+			remoteBalance: 25_000,
+			remoteReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 2_500,
+			},
+		},
+
+		{
+			name: "local above reserve with delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:     lntypes.Local,
+			localBalance: 25_000,
+			localReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  25_001_000,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  25_001_000,
+				Remote: 2_500,
+			},
+		},
+		{
+			name: "remote above reserve with delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:      lntypes.Remote,
+			remoteBalance: 25_000,
+			remoteReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 25_001_000,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  2_500,
+				Remote: 25_001_000,
+			},
+		},
+		{
+			name: "local below reserve with delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:     lntypes.Local,
+			localBalance: 25_000,
+			localReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  24_999_000,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  25_001_500,
+				Remote: 0,
+			},
+		},
+		{
+			name: "remote below reserve with delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:      lntypes.Remote,
+			remoteBalance: 25_000,
+			remoteReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 24_998_000,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: 25_000_500,
+			},
+		},
+		{
+			name: "local above reserve with negative delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:     lntypes.Remote,
+			localBalance: 55_000,
+			localReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  -4_999_000,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  -4_999_000,
+				Remote: 2_500,
+			},
+		},
+		{
+			name: "remote above reserve with negative delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:      lntypes.Remote,
+			remoteBalance: 55_000,
+			remoteReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: -4_999_000,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  2_500,
+				Remote: -4_999_000,
+			},
+		},
+		{
+			name: "local below reserve with negative delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:     lntypes.Local,
+			localBalance: 55_000,
+			localReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  -5_001_000,
+				Remote: 0,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  -4_998_500,
+				Remote: 0,
+			},
+		},
+		{
+			name: "remote below reserve with negative delta",
+			entry: &paymentDescriptor{
+				Amount: lnwire.MilliSatoshi(2500),
+			},
+			receiver:      lntypes.Remote,
+			remoteBalance: 55_000,
+			remoteReserve: 50_000,
+			balanceDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: -5_001_000,
+			},
+			expectedDeltas: &lntypes.Dual[int64]{
+				Local:  0,
+				Remote: -4_998_500,
+			},
+		},
+	}
+
+	chanType := channeldb.SimpleTaprootFeatureBit |
+		channeldb.AnchorOutputsBit | channeldb.ZeroHtlcTxFeeBit |
+		channeldb.SingleFunderTweaklessBit | channeldb.TapscriptRootBit
+	aliceChan, _, err := CreateTestChannels(t, chanType)
+	require.NoError(t, err, "unable to create test channels")
+
+	for _, testCase := range testCases {
+		tc := testCase
+
+		t.Logf("Running test case: %s", testCase.name)
+
+		if tc.localBalance != 0 && tc.localReserve != 0 {
+			aliceChan.channelState.LocalChanCfg.ChanReserve =
+				tc.localReserve
+
+			aliceChan.channelState.LocalCommitment.LocalBalance =
+				lnwire.NewMSatFromSatoshis(tc.localBalance)
+		}
+
+		if tc.remoteBalance != 0 && tc.remoteReserve != 0 {
+			aliceChan.channelState.RemoteChanCfg.ChanReserve =
+				tc.remoteReserve
+
+			aliceChan.channelState.RemoteCommitment.RemoteBalance =
+				lnwire.NewMSatFromSatoshis(tc.remoteBalance)
+		}
+
+		aliceChan.evaluateNoOpHtlc(
+			tc.entry, tc.receiver, tc.balanceDeltas,
+		)
+
+		require.Equal(t, tc.expectedDeltas, tc.balanceDeltas)
+	}
+}
diff --git a/lnwallet/payment_descriptor.go b/lnwallet/payment_descriptor.go
index 49b79a139dc..b5b319bc24e 100644
--- a/lnwallet/payment_descriptor.go
+++ b/lnwallet/payment_descriptor.go
@@ -42,6 +42,12 @@ const (
 	// FeeUpdate is an update type sent by the channel initiator that
 	// updates the fee rate used when signing the commitment transaction.
 	FeeUpdate
+
+	// NoOpAdd is an update type that adds a new HTLC entry into the log.
+	// This differs from the normal Add type, in that when settled the
+	// balance will go back to the sender, rather than be credited for the
+	// receiver.
+	NoOpAdd
 )
 
 // String returns a human readable string that uniquely identifies the target
@@ -58,6 +64,8 @@ func (u updateType) String() string {
 		return "Settle"
 	case FeeUpdate:
 		return "FeeUpdate"
+	case NoOpAdd:
+		return "NoopAdd"
 	default:
 		return "<unknown type>"
 	}
@@ -238,7 +246,7 @@ type paymentDescriptor struct {
 func (pd *paymentDescriptor) toLogUpdate() channeldb.LogUpdate {
 	var msg lnwire.Message
 	switch pd.EntryType {
-	case Add:
+	case Add, NoOpAdd:
 		msg = &lnwire.UpdateAddHTLC{
 			ChanID:        pd.ChanID,
 			ID:            pd.HtlcIndex,
@@ -290,7 +298,7 @@ func (pd *paymentDescriptor) setCommitHeight(
 	whoseCommitChain lntypes.ChannelParty, nextHeight uint64) {
 
 	switch pd.EntryType {
-	case Add:
+	case Add, NoOpAdd:
 		pd.addCommitHeights.SetForParty(
 			whoseCommitChain, nextHeight,
 		)
@@ -311,3 +319,8 @@ func (pd *paymentDescriptor) setCommitHeight(
 		)
 	}
 }
+
+// isAdd returns true if the paymentDescriptor is of type Add.
+func (pd *paymentDescriptor) isAdd() bool {
+	return pd.EntryType == Add || pd.EntryType == NoOpAdd
+}