Finance – Bright-line explained 

After the changes in the credit lending rules in the previous year a lot of investors have had to get second tier lending which comes at a higher cost and a higher rate than normal lending. With the regular increases in interest rates and the restriction in the claiming of interest on the properties rented, some are having to reassess whether owning the property (or properties) is viable long term.

If they decide that it is not viable and decide to sell, property owners will be affected by the bright-line test (see box below) – any gain made between the sale price and the cost price will be deemed income and be taxable. 

Any interest not claimable against the rental will be claimable as an expense if sold and can reduce any gain made.

Discussion in the marketplace indicates that some investors are preparing their houses for sale in Spring to attempt to get the best prices for the properties – potentially good news for home buyers, as the supply of housing stock available may increase at that time .

If you do sell and are subject to the bright-line test, it is important that you discuss the sale of the property with your accountants or tax advisors so any tax that may become due is planned for.

Bright-line rules • The Bright-line property rules relate to residential  houses that are not your personal residence and that you rent out to other people • If you owned the property (or properties) prior to March 28, 2018 the bright-line requirements have passed, as it was two years at that time • However, if you bought between March 29, 2018 and March 26, 2021 you must hold on to the property for five years from the date you purchased the properties • If you bought after March 27, 2021 you must hold the property for 10 years, unless the property is a new build which you would need to hold onto for five years • If you sell such properties within the five or 10 year periods, any gain on sale will become taxable income to you .