A capital gains tax by stealth on your family home?

If you have been keeping a close ear to the pulse of recent media reports, you may have noticed the so-called "bright-line test" that taxes the gains on the sale of residential property, getting some increased airtime. 

So what is all this about? 

According to a recent Inland Revenue draft interpretation statement on the bright-line rules, it has highlighted the potential for the family home to be taxed. This risk relates to anyone who purchased a home on or after 27th March 2021 and spent a continuous period of twelve months or more not living in it, then subsequently sold it within 10 years of purchase. 

In such a circumstance as indicated above, this means a portion on the gain of the property sale could in fact be subject to being taxed at their marginal income tax rate (ie. up to 39%). This would be irrespective of the reason for the absence from the property and whether or not this was within their control.

"The bright-line rule was never intended to tax the family home, so gains made on the sale of a person's main home were excluded from taxation, provided the property was used as a main home for "most" of the time it was owned".

The bright-line test has had many iterations since it was originally introduced; circumstances and scenarios such as the above do raise some genuine concerns for people. This unfairness was highlighted in the media recently, resulting in a statement from the Prime Minister's office on the 23rd of August that the bright-line rules would be clarified to ensure they would not tax the family home.

This will likely involve continued discussion with further considerations given, particularly with the heightened interest heading into an election. 

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