It’s no secret – Labour was not fan of those involved in property. Extension of the Brightline period, loss of interest tax deductibility and changes to tenancy laws were favoured policies of the Red Team that negatively affected property investors and tenants alike.
That story is changing now we are led by a National Government. Indeed, National campaigned on several property policies and tax changes. Probably the most significant tax change to be implemented is the roll-back of interest on investment property. Under Labour, claiming interest on loans raised for the purchase and renovation of investment property was being phased out. Indeed, Labour removed interest tax deductibility on a sliding scale for rental properties bought on or after 27 March 2021. National however supports property investors. It’s plan for those impacted by Labour's interest tax changes is to allow a property investor to claim back 80% of interest expenses from 1 April 2024 and 100% from 1 April 2025. This applies regardless of when the property was acquired or when the loan was taken out. We are expecting this legislative tax change to encourage investors back into the property market.
Another significant change National has made involves reducing the bright-line test for residential property from 10 years to two years. This change will only apply to properties sold on or after 1 July 2024, which means that if you purchased before 30 June 2022 you will be outside of the Brightline net, and for those who purchased on or after 1 July 2022, you will need to wait until the 2 years window has expired. Please note that the clock starts when upon settlement and stops when you sign the sale and purchase agreement. An effect of this policy may be those investors who were waiting for this change to be introduced so as to take them outside the Brightline period, will now sell.
Possibly commercial property owners won’t be that happy with one of National’s policies. Under the same tax package, National will also abolish depreciation deductions for commercial buildings with an expected lifespan of over 50 years starting from the 2024-25 tax year, effectively reverting to pre-2020 practices. This adjustment imposes an additional tax burden on commercial property investors by eliminating deductions for building depreciation, thereby contributing to the Government's broader fiscal objectives.
Residential ring fencing rules aside, by disallowing depreciation deductions for commercial property while reintroducing interest deductions, the policy aims to ensure both commercial and residential property investments face similar tax treatment from this point forward.
All in all, we expect many people who’ve been sitting on the property sidelines, to take action now these legislative tax changes treat property investors the same as other business investors.
When it comes to tax, we say the devil is in every letter of the detail so be sure to contact your Greenlion advisor before you take action if you think you may be affected by any of the changes above.
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