Residential property investment is undergoing multiple changes in tax regulations, notably a reduction in the bright-line rule duration and a reintroduction of interest deductibility. These changes will be welcome news for property investors, offering greater flexibility and potential for higher returns on investment.
Interest deductibility returns
Interest deductibility is a crucial aspect for investors who own rental properties with mortgages as the deduction reduces taxable income.
The previous Labour government removed the ability for property owners to offset mortgage interest costs against rental income. However, the current Government has announced significant adjustments to these regulations.
Under the new provisions, landlords will be permitted to claim 80% of their interest expenses starting from 1 April 2024. And from 1 April 2025, they will be able to claim 100% of these expenses.
Bright-line property rule reduction
The purpose of the ‘bright-line’ property rule is to make sure that tax is paid on the financial gains made when property that is bought and sold within short time periods for income.
The coalition Government has declared a reduction in the bright-line test period. Effective from 1 July 2024, the duration will be shortened from 10 years (five years for new builds), down to two years.
This revision essentially implies that properties sold after 1 July 2024, will only be subjected to the bright-line rule if owned for less than two years.
We believe this development benefits genuine investors while also targeting traders attempting to disguise themselves as long-term investors to evade tax on their capital gains.
Implications of the changes
These changes create a more favourable environment for property investors, allowing them to navigate the market with increased confidence and certainty. If you would like to understand more about how your investments will be affected, please get in touch with us.
