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Among a range of measures to curb property speculation and support first-home buyers, the Government announced on Tuesday 23/3/21 that it intends to double the bright-line test from five to ten years.

The Bright line test

The bright-line test taxes profits from the sales of residential property if they are sold within a set time period. The government intends to increase the bright-line test period from 5 years to 10 years.

The 10 year bright-line test will apply to residential properties purchased on or after 27th March 2021. The bright-line property rule does not apply to properties acquired before 1 October 2015

For tax purposes, a property is generally acquired on the date that a binding sale and purchase agreement is entered into, however under the bright-line test the bright-line period commences on the date legal title is acquired and ends when a binding agreement to sell is signed.

If the title is not obtained before a subsequent agreement to sell is signed, then the bright-line period will commence when the agreement to purchase was signed. This would have application where a purchase off-the-plans was made but the land was later sold before title to the land was issued to the vendor.

The exceptions to this bright-line test extension are:

  • Newly-built houses – which remain subject to the 5-year test period. The definition of a “new build” is still to be clarified, but it is expected to include properties purchased within one year of receiving their code of compliance certificate.
  •  Inherited properties – which remain exempt from the bright-line test.
  • Main homes – which are excluded if they meet the main home exclusion criteria. However, the criteria is being modified from 27th March 2021 to require an apportionment calculation if it was used as the owner’s main home for a period of less than 12 months.

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