Finance – Residential rental properties changes

The Government, in the 2020 tax year, brought in ring-fencing of any losses on rental properties, which means that owners of rental properties cannot claim the loss against other income. The losses have to be claimed against future rental income, or against other rental income if you have a portfolio of rental properties.

In March, the Government also brought in the following changes which will affect owners of residential rental properties:

For rental properties purchased after March 27 this year, interest paid on any loans or mortgages will not be deductible against income from the rental property.

For existing properties from October 2 this year, the deductibility of interest on the properties will be reduced each year, until no further interest can be deducted from rental income, as follows:

From 1/4/20 to 31/03/21     interest will be deductible in full

From 1/4/21 to 30/09/21     interest will be deductible in full

From 1/10/21 to 31/03/22     75 percent of the interest will be deductible

From 1/4/22 to 31/03/23     75 percent of the interest will be deductible

From 1/4/23 to 31/03/24     50 percent of the interest will be deductible

From 1/4/24 to 31/03/25     25 percent of the interest will be deductible

From 1/4/25 onwards     no interest will be deductible.

Note: Interest on any loans or mortgages taken out after March 27 this year, on existing properties will not be deductible.

The Brightline Test has also been extended for residential rental properties purchased after March 27, 2021, extending the time you need to own the properties from five years to 10 years. If you sell the property within this timeframe, you will be taxed on any gain made on the sale of the property. There are some exceptions to this, you should talk to your accountant to see if they affect you. It is important to note that these changes do not affect commercial rental properties.