Government addresses housing affordability


On the 23rd March 2021 the Government announced that it would make a number of changes to the taxation of residential property to address the issue of increasing housing un- affordability. Legislation has been enacted implementing some of the announced changes, whilst the balance are to be consulted upon before further legislation is drafted.

Legislated changes - The bright-line test taxes the sale of residential property if it is sold within a prescribed period of time, subject to specific exclusions such as for the family home and farmland. The new legislation prescribes that a residential property acquired on or after 27 March 2021 will be subject to a 10 year bright line test, i.e. if it is disposed within 10 years of acquisition (generally the date a binding sale and purchase agreement is entered into) any capital gain will be subject to income tax. For transactions part way through completion as at 27 March 2021, guidance has been released by Inland Revenue to assist in determining whether the new 10-year period applies or not.

The exclusion for the ‘main home’ has also been modified. Under the old rules the bright-line test applied on an all or nothing basis, i.e. if the property was ‘predominantly’ a main home it was not taxable on sale. This exclusion has been amended. For property acquired from 27 March 2021, if the main home is not used as the owner’s main home for more than 12 months at a time during the bright-line period, the profit on sale will be partly taxable based on the period it was not a main home. If the property was purchased before 27 March 2021 the main home exclusion continues to apply on an all or nothing basis.

Changes to be implemented - Although legislation has been passed increasing the bright-line period to10 years, as outlined above, it has been proposed that the pre-existing period of five years will continue to apply to ‘new builds’. However, at this stage what comprises a new build has not been defined.

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