Recent Law Changes for Property Investors

Updated: Mar 31

The government has announced a number of changes to the Bright-line test in an effort to control the housing market. I’ve read a number of articles, opinion pieces, and social media posts and the feedback has been varied. Will the changes have the desired effect? Will the property market crash? Will rent prices increase?


At the end of the day, we can talk till we’re blue in the face about what might happen, but what we need to focus on is what has happened and what it means for you.

10 Year Bright line Test

  • Investment Properties purchased on or after 27th March 2021 will be subject to the 10-year bright-line test

  • Exclusions to this rule are:

  • New-build properties will still be subject to the 5-year rule

  • If you purchased the property on or after 27th March 2021 but signed an offer before 23rd March 2021 that you can’t get out of, then you’ll be subject to the 5-year rule

  • The “main home” exclusion has been changed. For properties purchased after 27th March 2021 which is used for more than 12 months as an investment property, your taxable income will be calculated by proportioning out the gain based on the percentage of the time it was used as an investment property versus the total length of time owned.

Interest

The government will consult on the interest changes, but their current intention is to:

  • For properties purchased on or after 27th March 2021 disallow interest as a tax deduction from 1 October 2021

  • All other investment properties, disallow interest over the next 4 years:

  • Reduce the interest deduction to 75% from 1 October 2021 to 31 March 2022

  • Reduce the interest deduction to 75% for the March 2023 year

  • Reduce the interest deduction to 50% for the March 2024 year

  • Reduce the interest deduction to 25% for the March 2025 year

  • Reduce the interest deduction to NIL for the March 2026 year and onwards

  • If you purchased the property on or after 27th


March 2021 but signed an offer before 23rd March 2021 that you can’t get out of, then you’ll be subject “all other investment properties” rule and have interest phased out over the next 4 years.

  • The are also considering an exemption for New-build properties and to allow interest to be deducted as an expense against sale proceeds in the event of being taxed under the bright-line test.

The IRD have published some useful fact sheets:

· Click here for more information on the 10-year brightline test changes

· Click here for more information on the interest changes

If you would like to know more, please drop us a line or book a meeting.


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