Sale of Residential Property within 2 Years of Purchase

The Inland Revenue have now released full details of how the proposal, which is due to apply to property purchased after 1 October 2015, will work.

house-calcThe Inland Revenue have now released full details of how the proposal, which is due to apply to property purchased after 1 October 2015, will work.

The proposal only applies to residential properties.  This includes:

 

    • rental properties;

 

    • holiday houses;

 

    • house for your children – in this case you may be able to overcome by buying house in the child’s name but this may create other issues.



It will not apply to:

    • commercial property including farm land. Therefore the farm house won’t be subject to the 2 year rule;

 

    • a taxpayer’s personal home including homes owned by a family trust; at this stage it appears personal homes owned by a company will be subject to the 2 year rule;

 

    • inherited properties;

 

    • properties acquired under a Relationship Property Agreement unless sold within the 2 year period.



Any profit on residential properties will be taxable if the contract to sell is signed within 2 years of the Purchase being registered on the title.  In effect this period will generally be considerably longer than 2 years and makes no sense as the time of Purchase & Sale are calculated differently which is likely to create considerable confusion.

In working out the Profit, holdings costs (rates, insurance, interest, repairs etc) are not deductible.

NB that the 2 year rule does not override current tax law.  If your primary purpose in buying a property (residential or commercial) is to sell it at a profit that profit is taxable no matter how long the property is owned for.  So as we have said many times before, be careful what you tell the bank when you buy a property.