Investment property changes

When: 27 March 2021

What: For properties acquired on or after 27 March 2021:

• Legislation has passed that extends the bright-line test from five years to 10 years on residential property.
• The Government intends for the bright-line test to remain at five years for new builds and will be consulting on what a new build is soon.
• Legislation has passed that introduced a ‘change of use’ rule. If the sale of your property is subject to the bright-line test, and you don’t use the property as your main home for 12 months or more, you will be required to pay income tax on a proportion of the profit made through the property increasing in value.

• If you sell a property within 10 years of acquiring it (or five years for a new build) and it was your main home for the entire time you owned it, you will not pay tax under the bright-line test on any gain in value.
• Any gain in property value that is considered taxable income (including under any of the bright-line tests) will also affect any other obligations or entitlements you have based on taxable income, such as student loan repayments, child support payments, and Working for Families.

For properties acquired before 27 March 2021:

• The previous bright-line test for five years will continue to apply for properties acquired before 27 March 2021.
• The Government has proposed that interest on loans for investment properties acquired before 27 March 2021 can still be claimed as an expense, but the amount will reduce each year until it’s completely phased out by the 2025-2026 tax year. A consultation will be held about this.

Fact sheet: Proposed changes to bright-line test(external link) — Inland Revenue

Why: These changes have been put forward with the aim of increasing housing supply and housing affordability

Investment property: law changes and tips for maximising returns