By Aliesha Lehmann - May 2018
On 1 October 2015, the Bright Line Test was introduced by IRD. This Test required tax to be paid on any profits made from the sale of a residential property where that property was bought and sold within two years, with some exceptions. The key exceptions to the rule were if the property was used as your main home, the property was transferred upon death, or the property was transferred under a relationship property agreement.
The enforcement of this rule meant that the frequent transfer of properties by investors with the aim of making monetary gain would now be monitored, and in some cases, taxed. The Government hoped this would aid the housing crisis by deterring investors from “flipping” houses regularly for a profit.
Under a new Labour-led Government, the Test was extended to five years from 29 March 2018. The extension means that residential property purchased on or after 29 March 2018 may be taxed on sale if the property is sold within five years. The same rules and exceptions continue to apply. Any property that was purchased prior to 29 March 2018 will still be subject to the two year rule.
What you need to know:
If you are thinking of selling a property that may fall under the Bright Line Test, please contact us before you sign the agreement – we can work together with your accountant to ensure the best outcome for your sale.
Aliesha is a Legal Executive in our Property Team and can be contacted on 07 958 7442.