What this means for your residential rental property if purchased to run your business...

You are probably now well aware that the bright-line test has been extended to five years.

If you own a residential rental property or a holiday home, changes to the bright-line test may mean you have to pay more tax. The current law came into effect 1 October 2015 and states that if any residential rental property, or a holiday home, is sold within two years of being purchased, you have to pay tax on any profit from the sale. This timeframe has now been extended to residential rental property sold within five years for property purchased on or after 29 March 2018. There's more detail on how this will work here.

Former residential property purchased for the purposes of running a business may be exempt from the bright-line test if it's no longer considered to be residential property. If, however, you buy residential property and then convert it into your business premises within the bright-line test period, it may be deemed a sale from you to your business and subject to this tax on that basis.

The bright-line rules are complex and strictly enforced by Inland Revenue. If you're in any doubt about what to do, please contact us.