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Residential Property - the bright-line test and tax

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Property investors come in all shapes and sizes, from large scale professional operations and developers to so-called ‘Mum and Dad’ investors who wanted to save for their retirement with something they could feel was literally safe as houses.

Changes to tax rules for investment properties have shocked investors. More are coming, as Inland Revenue have put further changes out for consultation.

So far, for properties purchased on or after 27 March 2021:

  • the bright-line test is now extended from 5 to 10 years, except for new builds, where the test period is still 5 years
  • the current bright-line test exemption for the main home changes, making them subject to a ‘change of use’ rule

From 1 October 2021, property owners will not be able to claim mortgage interest deductions on residential investment property acquired after 27 March 2021, and mortgage interest deductions for residential investment property acquired earlier will be phased out over the next four years.

Inland Revenue are now issuing bright-line campaign letters. As soon as they are aware of a potential bright-line transaction, usually within a month of the transaction, they’ll get in touch to give an early heads-up of any possible tax obligations.

The Government is considering further changes, including for example, the rules around what constitutes a ‘new build’ and how the interest deductibility rules should work.

We’ll keep you informed, but if you’re planning to buy or sell property, please contact us so we can look at the tax implications with you.

We can sort out any tax issues

Ultimately, the Inland Revenue calculates your tax based on the information they have about you and your business. If they have the wrong information, you may be paying too much tax or too little tax.

We can look at your surprise tax bill and help you work out what’s gone wrong. We can also deal with Inland Revenue on your behalf to give them the right information and ensure you’re paying exactly what’s required and no more. We’ll work with Inland Revenue to get your refund sorted out or to come up with an affordable payment plan.

DOWNLOAD THE GUIDE ON RESIDENTIAL PROPERTY - THE BRIGHT-LINE TEST AND TAX

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